The Swiss National Bank kept its key interest rate at 0% on Thursday, running counter to the tightening cycles launched by most major central banks. Still, market observers believe the SNB will eventually be forced to raise rates.

The decision puts Swiss monetary policy at odds with that of the country's main trading partners: the European Central Bank, the US Federal Reserve and the Bank of Japan have all begun raising rates to fend off rising inflation. The Bank of Canada and the Bank of England, two other major trading partners, are expected to follow suit later this year.

Switzerland's economy is unusual and is partly insulated from the inflation surge hitting its neighbours and peers. Swiss inflation edged up to 0.8% in August, driven by higher prices for petrol, diesel and heating oil, but that remains far below levels in the United States, the United Kingdom and the euro area.

Those central banks all target 2% inflation, whereas the SNB aims to keep inflation within a 0%–2% range. The market widely expects the SNB to eventually begin a hiking cycle as well. Trader pricing shows the odds of a December hike and of holding rates steady are close to a coin flip, while the probability of a hike by early 2027 exceeds 90%.

Data show traders are betting that the Swiss key rate will rise to at least 0.75% by September next year. A sudden, sharp appreciation of the franc would dampen inflation and economic activity. As a result, the SNB also keeps a close eye on the exchange rate as it works to maintain "appropriate monetary conditions."

In 2025, investors seeking shelter from broad market volatility drove the franc up more than 12% against the US dollar, while the dollar has recovered about 4% of that decline against the franc so far this year. The franc's safe-haven status is one reason Swiss inflation has stayed low. A strong franc creates deflationary pressure: as the currency appreciates, imported goods, which play a major role in the Swiss economy, become cheaper.