By Ed Frankl
Switzerland's central bank kept its key interest rate on hold on Thursday, and again signaled its willingness to intervene in the foreign-exchange market after safe-haven flows pushed the Swiss franc higher following the start of the war in Iran.
The Swiss National Bank held its policy rate at 0%, in line with market expectations, a third-straight hold after six consecutive quarterly cuts until June 2025.
The SNB has been forced in the last year to act as gatekeeper to limit the rising value of the franc, which weighs on inflation by making imports cheaper and hurts the domestic economy by making the country's exports pricier abroad.
The franc has appreciated more than 11% against the U.S. dollar in the last 12 months as investors sought a safe haven from President Trump's tariffs and increasingly strained international relations.
While the franc hasn't gained much against the dollar since the Iran attack, given the dollar's role as a global reserve currency, it has on the euro, which weighs more severely on Switzerland's export businesses.
The bank escalated its messaging just after the U.S.-Israeli strikes on Iran that began on Feb. 28, when the euro single currency briefly hit a decade-low against the franc of less than 0.90.
"Given the conflict in the Middle East, the SNB's willingness to intervene in the foreign exchange market has increased. The SNB thereby counters a rapid and excessive appreciation of the Swiss franc, which would jeopardize price stability in Switzerland," the bank said Thursday.
The commentary underlines the bank's willingness to intervene to limit upward pressure on the franc and stresses uncertainty resulting from the Iran conflict, said Andrew Kenningham, chief Europe economist at Capital Economics, in a note to clients.
"We now think the SNB will leave rates unchanged for the foreseeable future," he said.
However, the bank stressed it would keep its options open, including taking interest rates below zero, a move that would mean commercial banks pay to borrow from the central bank.
Policymakers have reiterated there is a high bar to doing so due to the pain it causes for savers and bank profits. Switzerland had negative interest rates for more than seven years until September 2022 as it battled low inflation or outright deflation. Annual inflation held at 0.1% for the third straight month in February, close to the bottom of the SNB's 0%-2% target.
Should the SNB act in the foreign-exchange market, it is likely to be based more on the speed and intensity of currency fluctuations that could jeopardize price stability than a level of the currency that might prompt pain for businesses or consumers.
"It's more about the pace of the move and the size of the move rather than the exact level that will lead them to potentially intervene in the market," said Dani Stoilova, U.K. and Europe Economist at BNP Paribas Markets 360.
However, any large moves in the market could put Switzerland in the sights of the U.S. Treasury, which has included the country on its watch list for currency manipulation.
Still, the SNB should be in a better position to navigate the energy shock than other central banks, Stoilova said. Switzerland has a more diverse energy mix--including nuclear and hydroelectric power--compared with other countries, and fixed electricity prices for consumers set once a year.
"Given the starting point of the Swiss economy, the SNB can be a little bit less worried about the extent of the inflationary impacts and second-round effects resulting from the energy price shock, which is the challenge other central banks are facing," she added.
Regardless, imported oil-and-gas price increases are expected to raise inflation in the coming year. The SNB now pencils in inflation to average at 0.5% both this year and 2027, from 0.3% and 0.6% previously.
That moves the Swiss economy away from a slide into deflation--a period of falling prices--that would threaten economic activity.
Even in the most adverse scenario, in which the conflict in the Middle East escalates, inflation would peak at 1.9%, Goldman Sachs economist Niklas Garnadt said, still within the central bank's price-stability range.
However, the economic outlook had become considerably more uncertain due to the war, the SNB said.
"While we expect the SNB to remain on hold under our baseline forecast, near-term inflation risks have shifted to the upside, as have risks to the policy rate path," Garnadt said in a note to clients ahead of the rate decision.
Write to Ed Frankl at edward.frankl@wsj.com
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Taking Swiss interest rates below zero would mean commercial banks pay to deposit at the central bank. "Swiss National Bank Holds Key Rate as Franc Concerns Persist -- Update" at 0905 GMT, incorrectly said that under negative rates, commercial banks would pay to borrow from the central bank. The error was repeated in "Swiss National Bank Holds Key Rate as Franc Appreciation Concerns Persist -- 2nd Update" at 0921 GMT.
(END) Dow Jones Newswires
March 19, 2026 06:36 ET (10:36 GMT)
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