Another 25 bps rate cut today is all but expected and that will bring the key policy rate back to 0% for the SNB. The bottom line is that the Swiss economy is facing up against deflationary risks again and the SNB has to do what they can to prevent that. And amid a stronger franc currency, they don’t have too much other options but to tweak interest rates once again.
The market has fully priced in another rate cut today but expectations of a return to negative rates remain mixed. Traders are pricing in ~47 bps of rate cuts though by year-end, which includes the 25 bps rate cut later today.
That being said, the SNB has been trying to stave off talk of negative rates for now at least. They keep alluding to trade developments and watching domestic inflation dynamics before really committing to that big step again.
In any case, the policy rate appears to be following the path of inflation more than anything else
