The Swiss National Bank is expected to keep interest rates unchanged this week and intends to "take action" to curb the surge in the Swiss franc.

The Swiss National Bank will demonstrate its determination to limit the appreciation of the Swiss franc through the upcoming interest rate decision, and this decision is likely to avoid taking the more aggressive option of negative interest rates. Economists generally expect the Swiss National Bank to keep the benchmark interest rate at zero on Thursday. However, since this interest rate decision is less than three weeks away from when the Swiss National Bank hinted at possible currency interventions, the wording of the central bank will be closely monitored. Nadia Gharbi, senior economist at Pictet, said, "We will all focus on the communication. The wording in the policy statement may remain unchanged. But in the press conference, Swiss National Bank President Martin Schlegel will want to send clearer messages." The rise of the Swiss franc is driven by domestic factors rather than global trends. The Middle East conflict has forced the Swiss National Bank to reassume its traditional role as a "haven manager" as a large amount of safe-haven funds flow in, pushing the Swiss franc to a ten-year high against the euro and making it the best-performing major European currency against the US dollar this year. However, the appreciation of the Swiss franc will further suppress Switzerland's already weak inflation by lowering import costs. In the early stages of the Middle East conflict, the pressure of the franc appreciation was so great that policymakers even issued statements indicating that their intervention willingness had increased. Such wording is usually only seen during Swiss National Bank interest rate decisions. Although this change in wording (possibly accompanied by actual action) signals a shift in the Swiss National Bank's cautious stance on the foreign exchange market compared to recent years, its aggressiveness is still lower than the negative interest rate policy which would charge investors holding francs but at the cost of damaging the economy. The release of the Swiss National Bank's statement comes at a crucial time as global policymakers assess the impact of the Middle East conflict. This week, eight of the top ten most active trading currencies globally will announce policy decisions, with the Federal Reserve announcing its decision a day before the Swiss National Bank, and the European Central Bank likely to maintain its rate shortly after the Swiss National Bank. However, Swiss policymakers may take some comfort in the fact that although Swiss inflation is almost invisible, its trend is consistent with previous forecasts. Following multiple occasions of falling below expectations, the Swiss Consumer Price Index (CPI) year-on-year increase currently stands at 0.1%, at the lower limit of the Swiss National Bank's target range of 0% to 2%. The rise in oil and gas prices may even provide some help, although energy accounts for a smaller proportion of the cost of living basket in Switzerland compared to other economies. Switzerland's February inflation rate remains at 0.1%. Alexander Koch, senior economist at Raiffeisen Switzerland in Zurich, said, "The Swiss National Bank hopes to see slightly higher inflation. This is also why it can comfortably stand still. I would say their caution has increased, but they have not felt the pressure to take action." Consistent with this, the Swiss National Bank's forecasts for consumer price growth are expected to remain largely unchanged, with slight adjustments in the coming quarters due to energy costs. Since this forecast reflects the views of policymakers - openly referred to as part of the "communication materials" by the Swiss National Bank - the endpoint of 2028 will be particularly closely watched. If this forecast exceeds the 0.8% given in December of last year, it may spark market expectations of future rate hikes. Given that a strong Swiss franc typically suppresses inflation, the exchange rate is likely to remain a key focus for current policymakers. The Swiss National Bank is also maintaining a balance between this approach and monitoring by US officials for currency manipulation. In its annual report released on Tuesday, the Swiss National Bank stated that its joint statement with the US Treasury last year "confirmed" that foreign exchange interventions are "an important monetary policy tool for the Swiss National Bank in fulfilling its mission to ensure price stability." Some observers even argue that there may be reasons to allow the Swiss franc to strengthen now, as it could help curb runaway inflation. Geoffrey Yu, senior market strategist at New York Bank, said, "You almost need a stronger currency now to limit the transmission risks from external energy price increases. I believe their tolerance for a strong franc will increase." In terms of policy outlook, traders are already expecting Switzerland to raise borrowing costs this year, but economists predict this may not happen until after 2028. Philipp Burckhardt, strategist at Lombard Odier Investment Managers in Zurich, said, "Global interest rate structures are expected to rise, and the Swiss market cannot completely detach from this. And the Swiss franc market is very illiquid." On the other hand, given the Swiss National Bank's past surprises in shaking up the market, its decisive approach means that even though it is currently considered unlikely, the possibility of lowering interest rates to the negative range cannot be entirely ruled out - even though it would be unpopular among consumers. Some economists suggest that such a move may be implemented with a substantial cut of 50 basis points to maximize the impact of such a step. Karsten Junius, chief economist at J Safra Sarasin Bank in Zurich, said, "If it makes sense, they will do it, regardless of how the public feels. The Swiss National Bank has repeatedly indicated that it is not afraid to make unpopular decisions."