Market Insights June 23, 2025

Are SNB interest rates really at rock bottom?

As expected, the Swiss National Bank (SNB) has lowered its policy rate by 0.25 percentage points, bringing it down to 0%. This decision follows a wave of global monetary easing, as Swiss inflation has significantly slowed in recent months. In an internationally uncertain environment, this move aims to support the economy while curbing the appreciation of the Swiss franc, which puts pressure on exports.

However, the SNB surprised economists and investors in its commentary by indicating that, for the time being, it does not anticipate further rate cuts in the coming months. While the central bank currently appears to rule out a broad return to negative interest rates, some deposits are already subject to penalties: above a certain threshold, commercial banks' reserves held at the SNB will now incur a negative rate of -0.25%.

In our view, further cuts into negative territory remain possible, particularly in the event of an economic shock triggered by geopolitical uncertainties or the imposition of punitive tariffs on exports to the United States.

Why are European markets so worried about the price of oil?

Global geopolitical risks are undeniably operating at particularly elevated levels this year. Between the war in Ukraine, the trade war launched by the US president against most of America’s commercial partners, ongoing tensions between the US and China, and the chronic instability in the Middle East, Israel’s recent strike on Iranian nuclear facilities adds to an increasingly concerning pattern. This incident raises fears of a potential regional crisis. However, despite the conflict’s potential severity, the overall economic impact remains, at this stage, contained.

The cornerstone of this resilience lies in the price of oil, which is the primary transmission channel between geopolitical shocks and global economic disturbances. A sharp spike in crude prices directly affects production costs, fuels inflation, and suppresses household demand. Conversely, as long as oil prices remain in check, the global economy can absorb geopolitical stress without slipping into crisis. Currently, oil markets remain relatively stable. Following a brief spike at the end of the week, Brent crude has settled around $75 per barrel, well below the peaks seen in past crises. This stability largely stems from surplus production capacity, notably in the United States (thanks to shale oil), Saudi Arabia, and other producing nations, which can offset a potential decline in Iranian output.

Only one event could potentially reverse this dynamic: an unlikely Iranian blockade of the Strait of Hormuz. More than 20% of global oil output passes daily through this narrow strategic waterway. Any sustained disruption would trigger a major supply shock, cause immediate price spikes, and place severe pressure on global energy supply chains.

For now, financial markets remain cautious but generally calm. Stock indices have undergone a mild initial correction, mostly as a precautionary response, with no signs of panic. Credit spreads and sovereign yields are holding steady, and traditional safe havens like gold and the US dollar have seen only modest movements.

In summary, as long as the integrity of the Strait of Hormuz is maintained and oil prices remain under control, the global economic risk appears contained, despite a clear and growing geopolitical threat.

This week’s figure:  2

Last week, the US Federal Reserve reiterated its intention to cut interest rates twice by the end of the year. For now, Jerome Powell and his colleagues are taking the time to better assess the potential impacts of Donald Trump's trade policy on the economy, particularly on inflation in the United States.