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Do you remember when it was said that the negative interest rates introduced by the SNB in January 2015 were merely a temporary emergency measure to combat the overvaluation of the Swiss franc? In reality, this ¡°emergency¡± lasted almost eight years and was only lifted in 2022, when global inflation rates surged due to supply chain disruptions and the outbreak of the war in Ukraine.

Now, just three years later, Switzerland could soon slip back into a period of negative rates. At its most recent monetary policy assessment, the SNB lowered its policy rate by only 25 basis points¡ªto 0%¡ªrather than the 50 basis points some had expected. However, the SNB highlighted the exceptionally high uncertainty regarding the economic outlook and left the door open to pushing rates into negative territory if needed.

Much will now depend on the external value of the Swiss franc. For the SNB, the EURCHF exchange rate is likely more important than USDCHF, as most Swiss SMEs are more exposed to the euro than to the US dollar. As recently as April, the SNB intervened in the FX market¡ªby our estimate, to the tune of around CHF 5 billion¡ªto keep EURCHF above 0.9250.

Should the pair fall significantly below this level, or even below 0.90, the SNB would likely return policy rates to deeply negative levels, as it did from 2015 onward. If, on the other hand, the US dollar continues to weaken while the euro remains relatively stable, the SNB may be more willing to tolerate a weaker dollar, especially since the ¡°fair value¡± of the dollar versus the franc is probably below 0.80, and the greenback remains slightly overvalued at current levels.

Regardless of how the currency and interest rate landscape evolves in the coming months, Swiss investors should brace for a prolonged period of extremely low yields in fixed income. First and foremost, it is important to review whether excessive liquidity¡ªi.e., cash balances in transaction or savings accounts, or short-term deposits¡ªis being held. This should be done as part of careful liquidity planning.

If there are surplus cash holdings that are unlikely to generate a positive real return for the foreseeable future, the question arises of how best to invest them. One option is to top up an existing, broadly diversified core portfolio. Given the considerable uncertainty about the market outlook, a phased investment approach over a set period may be advisable. In addition, targeted investments in income-oriented assets could be considered. These might include portfolios of high-quality dividend stocks, potentially supplemented by systematic covered call writing to generate additional, tax-advantaged income. Alternative assets, such as building a private equity roadmap or investing in hedge funds, are also worth considering. In fixed income, portfolios with slightly longer duration and comprising solid corporate bonds may offer opportunities.

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