Swiss Central Bank Holds Rates as War Pushes Up Inflation Forecast

By Ed Frankl

Switzerland's central bank kept its key rate on hold and reinforced its messaging that it was increasingly ready to intervene in the foreign-exchange market if necessary given still-high geopolitical uncertainty.

Policymakers at the Swiss National Bank kept the policy rate at zero for the fourth straight meeting, as expected by markets, but raised their inflation forecasts after the Iran war sent prices of imported energy higher.

However, Switzerland's lower dependence on Middle Eastern energy--through its greater use of hydroelectric and nuclear power--means the country is less exposed to the increase in global oil-and-gas prices than other European economies. The rise in inflation has also been contained by the appreciation of the Swiss franc against the euro since the start of the year, which makes imports cheaper.

While inflation has risen in recent months, touching 0.6% in May from close to zero at the start of the year, it remains easily within the lower end of the SNB's target of being positive but under 2%.

The central bank said Thursday that it now expects inflation to average 0.6% this year and next, from 0.5% for both years it forecast at its last meeting in March. For 2028, the bank expects inflation at 0.7%, from 0.6% previously. Investors don't expect the SNB to raise interest rates this year.

"Inflation has risen in recent months as a result of higher energy prices. Medium-term inflationary pressure, however, is virtually unchanged compared with the last monetary policy assessment," the SNB said in its accompanying statement to the rate decision.

That outlook marks a contrast to the neighboring eurozone, where inflation has risen above target since March. The European Central Bank last week raised borrowing costs, judging the increase in energy prices and its impact on overall inflation impossible to ignore. The Federal Reserve held borrowing costs steady on Wednesday, though officials signaled that rate rises ahead were possible after inflation climbed in recent months.

Indeed, the rise in inflation has been a relief for SNB policymakers, who until the war had been mulling taking the key interest rate below zero as the economy skirted deflation.

The franc spiked after the first U.S.-Israeli strikes on Iran at the end of February, leading the SNB to unexpectedly warn that it was more ready to intervene in the foreign-exchange market to stem a rapid and excessive appreciation of the currency.

Since early March, the franc has cooled against both the euro and U.S. dollar. The agreement between the U.S. and Iran signed by President Trump in Versailles, France on Wednesday could cool energy price pressures, while also easing upward pressure on the franc.

Although the Swiss economy accelerated in the first quarter of the year, household consumption stagnated and private investment declined, with surveys of businesses and consumers also weakening since the start of the war, suggesting that domestic demand is also unlikely to push up overall inflation in the near future. The SNB said it expects the economy to grow around 1.0% this year and 1.5% in 2027.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

June 18, 2026 03:56 ET (07:56 GMT)