Why interest rates remain low in Switzerland

The Swiss National Bank (SNB) has held its policy rate at 0.0% for more than a year. The level remains among the lowest in the world. For borrowers, the cost of money is low. For savers, bank deposits yield almost nothing. The SNB will next comment on the situation on 24 September.

The international comparison

The international picture points the other way. In the United States, the federal funds rate stands between 3.5 and 3.75%, and experts expect the Federal Reserve to raise it this week, the first increase since 2023, followed by at least one more in the near future. The Fed's new chair, Kevin Warsh, has named the fight against inflation as a priority, suggesting an imminent rate correction despite the approach of the midterm elections.

The European Central Bank raised its rate from 2.25 to 2.5% last Thursday. The Bank of England, holding at 3.75%, must review its policy this week: with inflation at 2.9%, almost a point above target, pressure for a hike remains strong. That 2.9% figure also matches the average eurozone inflation rate, while in the United States it stands at 3.4%. Only Japan comes close to Switzerland, with a rate of 1%, which the Japanese central bank is nonetheless expected to raise by one percentage point before the end of the week.

Switzerland combines low interest rates, low public debt and low inflation, a rare combination among industrialized countries. Caroline Hilb, head of investments and pensions at Raiffeisen, attributes the low rates to moderate price increases and the strength of the franc, adding an institutional factor: “Switzerland has very strict debt discipline, of which it is also proud.” The debt brake is cited as a key factor. Daniel Kalt, chief economist at UBS, underlines its role: “This helps limit debt and stops the government from overspending taxpayers' money.”

Mortgages, however, have moved. According to Comparis, ten-year mortgages currently cost 1.9% on average. Hilb explains that these rates follow international trends: “When rates rise in the United States, they also rise in Switzerland.” Still, the increase has been “significantly more contained” than in other European countries or in the United States.

For September, neither Kalt nor Hilb sees room for a hike in the policy rate. Swiss inflation came in at 0.8% year-on-year in August, still “too low” in Kalt's view to justify tightening. Hilb agrees: “At the moment, inflationary pressure is still insufficient, and the franc is too stable to warrant tightening rates.” An open question remains: how long Switzerland can sustain this fiscal discipline if international rate pressures start to show up more strongly in mortgage costs as well.