Some Swiss Lessons on Zero Interest Rates

The Swiss National Bank (SNB) re-entered familiar territory last Thursday, cutting its benchmark interest rate by 25 basis points (bps) to 0%. The widely expected move spurred chatter about a return to negative interest rates along with the possible implications for financial markets and the economy at large. Last time around, zero and negative rates were terra incognita for Europe, making any chatter largely speculative. But now we have actual history and results to look at. So let us explore what zero (and negative) rates did and didn’t accomplish for the SNB—which can inform investors’ expectations about the potential efficacy of central bankers’ actions today.

The last time the SNB adopted an effective zero rate—commonly referred to as Zero Interest Rate Policy, or ZIRP—was in August 2011, when the policy rate dropped to 0.00% - 0.25%. At the time, the eurozone debt crisis was in full swing, causing the Swiss franc to strengthen as European investors sought a local safe haven. The SNB considered its currency “to be massively overvalued … This current strength of the Swiss franc is threatening the development of the economy and increasing the downside risks to price stability in Switzerland.”^[i]

Many viewed a strong franc as an export headwind (since it theoretically makes goods and services more expensive for foreign buyers), and the Swiss economy depends heavily on trade. Meanwhile, the strong franc also raised the potential to “import deflation,” which some cast as an economic headwind. Rates stayed at zero until late 2014, when falling oil prices and a plunging Russian ruble sparked renewed demand for “safe investments” (e.g., the franc), prompting the SNB to go a step further and adopt negative rates. As the central bank argued, “The introduction of negative interest rates makes it less attractive to hold Swiss franc investments, and thereby supports the minimum exchange rate.”^[ii] Read: The SNB was discouraging folks from holding francs, worried exporters would become less competitive and low price pressures would lead to deflation.

So, did it work? In our view, the verdict is mixed. At the time, theory held that taking rates so low would boost money supply by making it unattractive to park cash rather than lending and investing. But Switzerland actually lapsed into monetary contraction in 2015, despite negative rates. As for the currency angle, yes, ZIRP and negative rates appeared to weaken the Swiss franc—relative to the US dollar and euro, respectively—in the short term. But the effect didn’t last. The franc weakened against the US dollar following the SNB’s 2011 rate cut, but it remained stronger than before the global financial crisis. (Exhibit 1) Compared to the euro, SNB policy changes did little to stem the franc’s strengthening over the same period. (Exhibit 2)

Exhibit 1: Swiss Franc Vs. US Dollar

Source: FactSet, as of 6/24/2025.

Exhibit 2: Swiss Franc Vs. Euro

Source: FactSet, as of 6/24/2025.

Yet contrary to fears and age-old mythology, the franc’s relative strength didn’t materially knock exports or the Swiss economy at large. During the 2009 – 2020 global expansion, Swiss exports trended upward. (Exhibit 3) Swiss GDP contracted on a quarterly basis just 4 times (out of 43 quarters) from Q2 2009 – Q4 2019. If a stronger franc was a hindrance, the data don’t show it.^[iii]

Exhibit 3: Swiss Exports During the 2009 – 2019 Global Expansion

Source: SNB, as of 6/23/2025. Swiss exports (Total values, in CHF millions), December 2008 – December 2019.

As the return of Swiss ZIRP—and possible negative rates—stirs questions about the economic implications, investors should keep in mind monetary policy’s broader economic effects are limited. Rate changes grab headlines, but they generally don’t materially alter nations’ economic trajectories. Mostly, they just follow market-set rates, which stem more from global factors. In most arenas, global matters more than local.

Inflation is one way to see this. Now, not every nation experiences the same inflation rate—some are much quicker than others. But directional trends are largely in line with one another despite monetary policy differences. For instance, the SNB and European Central Bank implemented negative rates in 2014 while the Bank of Japan followed suit in 2016; yet the US Fed and Bank of England never did. And because currencies trade in pairs, at any time some will zig while others zag. Yet inflation generally tracked the same direction in all these nations from the mid-2010s to today. (Exhibit 4)

Exhibit 4: Inflation in Major Economies, June 2009 – May 2025

Source: FactSet, as of 6/24/2025. Statement based on year-over-year change (percent) in Swiss CPI, eurozone HICP, UK CPIH, US CPI and Japan CPI National, June 2009 – May 2025.

Additionally, in 2015, when Swiss GDP had an isolated contraction, it wasn’t as if the Alpine nation was an economic anomaly. At the time, most headlines fretted slowing global growth, and the whole world endured a manufacturing slump—which some thought hinted at an economic downturn (spoiler alert: no recession occurred).

We don’t dismiss monetary policy, but we don’t overrate it, either. It is one input influencing the economic variables stocks care about. So when experts worry or cheer the potential consequences of hikes, cuts, ZIRP or … NIRP(?), don’t lose your hat—the broader economic effects aren’t necessarily as sweeping as many think.