Swiss National Bank: Another cut closer to zero 

Following the 50bps rate cut in December, the SNB delivered another 25bps rate cut at its March meeting, as was widely expected. It cited low inflationary pressures and heightened downward risks to inflation as the main reasons for the rate cut, preferring to react earlier than later. Swiss inflation has continued to cool in recent months, slowing to 0.3% in February. This slowdown was mainly driven by a cut in electricity prices in January. Core inflation, which strips out the volatile components of energy and fresh and seasonal products, has stabilised at 0.9%. Overall, the latest inflation readings were in line with the SNB’s conditional inflation forecast for the first quarter of this year. Accordingly, the SNB made only minor revisions to the expected trajectory, raising its conditional inflation forecast slightly to 0.4% for this year and leaving it unchanged at 0.8% for 2026. 

Looking ahead, the path forward is subject to increased uncertainty. The SNB refrained from providing any indications about its future monetary policy, highlighting considerable uncertainty surrounding the economic outlook for Switzerland, mainly stemming from the external environment. Downside risks could arise from possible US tariffs and the uncertainties related to global trade and geopolitics, while a more expansionary fiscal policy in Europe could improve the growth outlook for Switzerland in the medium term. We continue to expect a hold from here on, while acknowledging that the current uncertainties in the global environment require a high degree of flexibility from central banks and could change the expected interest rate path.

Swiss equities: Opportunities in the mid-cap space 

After a lacklustre 2024, Swiss equities have staged a strong comeback alongside broader European markets in early 2025. The rotation into defensive sectors, coupled with the recent sell-off in technology stocks, has reinforced the price momentum of Swiss equities, particularly given the Swiss Market Index’s (SMI’s) low exposure to the technology sector. Despite the SMI’s significant 32% revenue exposure to the US (the highest among European benchmarks), the earnings risks from US policy uncertainty appear to be contained. Additionally, robust fourth quarter results have bolstered confidence in the Swiss market, leading to positive earnings revisions. Consensus now anticipates 9.7% y/y earnings growth for 2025, which is broadly in line with developed market equities.

What does this mean for investors?

With Germany’s fiscal policy shift, we remain positive on Europe. In Germany, with the easing of the debt brake, this allows for a fiscal stimulus of 3% of GDP. And with defence and infrastructure spending expected to boost growth as of 2026, we are expecting a 2% increase over two years. While we still favour German equities, for those who would rather not buy into a government-sponsored investment boom, we highlight Swiss equities again as an opportunity for investors.