Re-Evaluating Swiss Franc Exposure in a Post-Negative-Rate Era: Navigating SNB Policy and Global Divergence

The Swiss National Bank (SNB) has once again positioned itself at the center of global monetary policy debates. As 2025 unfolds, the central bank faces a critical juncture: whether to reintroduce negative interest rates to counteract deflationary pressures and a strong Swiss franc (CHF). This decision, framed against a backdrop of divergent global rate trends and evolving economic conditions, has profound implications for investors re-evaluating CHF exposure in a post-negative-rate era.

SNB's Policy Tightrope: Negative Rates and FX Interventions

The SNB's policy narrative in 2025 is defined by a delicate balancing act. After cutting the policy rate to 0% in June 2025, the bank has signaled openness to negative rates if inflation continues to undershoot its 0–2% target. This echoes the 2014–2022 period, when negative rates were a cornerstone of SNB strategy to combat deflation and weaken the franc. However, the current context differs structurally. Unlike the past, when the SNB actively intervened in foreign exchange markets to cap the CHF, today's interventions are constrained by U.S. Treasury scrutiny over currency manipulation allegations.

A key innovation in the SNB's toolkit is its tiered remuneration system, which effectively imposes a -0.25% rate on excess reserves beyond certain thresholds. This "stealth negative rate" has already eroded Swiss banks' profitability, forcing financial institutions to adapt business models to a low-yield environment. SNB President Martin Schlegel has emphasized that negative rates remain an option, but the bank's hands are tied by the need to avoid further devaluing the franc amid global trade tensions, as Fitch Solutions argues.

Global Rate Divergence: A Tailwind for CHF Volatility

The SNB's challenges are compounded by divergent global rate trajectories. While the U.S. Federal Reserve and European Central Bank (ECB) have eased policy rates in 2025, Japan's Bank of Japan (BoJ) has normalized rates, raising its target to 1.0% by year-end, according to Julius Baer. This divergence creates a complex landscape for the CHF. On one hand, the SNB's zero-rate policy has contributed to the franc hitting 14-year lows against the USD and EUR. On the other, geopolitical risks-particularly in the Middle East-have reinforced the CHF's safe-haven appeal, with institutions like Goldman Sachs noting its preference over the yen, according to ExchangeRates.

The result is a paradox: a strong CHF driven by safe-haven demand, despite the SNB's efforts to weaken it. This dynamic has hurt Swiss exporters, with pharmaceutical and machinery sectors experiencing a 25% decline in exports since March 2025, Archyde reports. The SNB's September 2025 policy meeting, where it left rates unchanged amid U.S. tariff threats, underscores the central bank's struggle to reconcile inflation targets with export competitiveness, as CNBC reports.

Investor Strategies: Hedging Costs and Long-Term Trade-Offs

For investors, managing CHF exposure in 2025 requires navigating high hedging costs and uncertain policy outcomes. Hedging the CHF against major currencies like the USD incurs annualized costs of up to 4.25%, driven by interest rate differentials, according to LazyPortfolioETF. While forward contracts and currency-hedged ETFs offer protection, they also lock in costs that can erode long-term returns. A 13-year study of unhedged versus hedged MSCI World ETF returns, for instance, showed the unhedged USD version outperformed by 34.45% due to the franc's appreciation, based on a Petiole study.

The decision to hedge hinges on investment horizons. Short-term investors-particularly those with USD-denominated liabilities-may justify hedging to mitigate volatility. However, long-term equity investors face a dilemma: hedging costs can outweigh the benefits of CHF appreciation, especially in a low-inflation environment, as outlined in an LFA guide. This has led some strategists to advocate a phased approach, using CHF as a diversifier while selectively hedging against downside risks, an Integritas piece suggests.

Lessons from the 2014–2022 Era: Structural Shifts and New Realities

Comparing 2025 to the 2014–2022 negative-rate era reveals critical differences. During the earlier period, the SNB's aggressive interventions-including the removal of the CHF's minimum exchange rate floor in 2015-created a stable but artificial environment for the franc, as an Investopedia article explains. Today, the SNB's policy space is narrower, constrained by geopolitical sensitivities and a global shift toward neutral rates. Moreover, the current deflationary environment is less severe than the 2010s, with inflation projected to rise only modestly to 0.7% by 2027, according to Trading Economics.

These structural shifts suggest that the SNB's return to negative rates, if it occurs, will be more targeted and less disruptive than in the past. Investors should also consider the broader macroeconomic context: global term premia have risen due to trade tensions and inflation expectations, making the CHF's safe-haven status more resilient despite low yields, as noted in KPMG's Global Navigator.

Conclusion: A Calculated Approach to CHF Exposure

The Swiss Franc's role in 2025 is a study in contrasts: a currency weakened by low rates yet strengthened by safe-haven demand. For investors, the key lies in aligning exposure strategies with macroeconomic realities. Hedging should be selective, prioritizing short-term stability over long-term gains. Meanwhile, the SNB's policy path-whether it adopts negative rates or leans on FX interventions-will remain a critical variable.

As the SNB navigates this complex landscape, investors must stay attuned to both policy signals and global rate trends. The post-negative-rate era may not be over, but its contours are shifting-and those who adapt will find opportunities in the uncertainty.