What next on the interest rate front?

Every month, UBS takes a look at the current interest rate environment and provides a forecast for future developments. In the latest article on its website, the bank writes that with the current key interest rate of 0.50 per cent, we find ourselves in an environment of a slightly expansionary monetary policy. In 2023, inflation fell below 2 per cent, which corresponds to the SNB’s definition of price stability. This allowed the SNB to lower the key interest rate four times in 2024, most recently to 0.50 per cent. In view of the uncertain global situation and the diverging policies of the most important economic units, the question now arises as to whether the trend of falling interest rates in Switzerland will continue, whether a rise in interest rates is to be expected or whether there will be further easing.

UBS writes: “Yields on 10-year Swiss government bonds and mortgage rates with the same maturity stabilised in the first half of February after having risen significantly in January. In the second half of the month, however, there was a clear upward trend in bond yields again.” Despite the still unclear situation in Ukraine and the potential impact of US tariffs on cars and pharmaceutical products, the risk of a fall in interest rates remains for Europe. For Switzerland, however, UBS expects that “in view of the low inflation in this country and the economic risks in the eurozone (…) the SNB will lower its key interest rates again. This should also limit the upside potential of longer-term interest rates. Yields on Swiss government bonds and mortgage rates are therefore likely to stabilise at the low levels seen in recent months. Mortgage rates linked to SARON are likely to benefit from a further interest rate cut by the Swiss National Bank.”

Long-term interest rate development in per cent

Based on these considerations regarding the initial situation, UBS has arrived at the following forecast for the long-term interest rate trend in Switzerland: