Assessment of The Interest Rate and Mortgage Market – August 2025

Executive Summary

Interest Rate Market: The Swiss yield curve has changed little compared to the previous month, with no significant volatility observed. A return to negative key interest rates remains a possible scenario in principle, but the market is currently pricing in this risk with lower probability than in previous months.

Monetary Policy: Inflation turned slightly positive again in June, raising the question of whether May’s decline was merely a temporary deviation or if there is a trend toward persistent negative inflation. A growth slowdown caused by the renewed US tariff shock could reinforce deflationary pressures and increase the likelihood that the SNB will cut its key rate into negative territory as early as September.

Mortgage Rates: At the end of July, mortgage rates were roughly at the same level as the previous month. Since the start of the year, credit spreads have increased overall, and the differences between providers have widened significantly. For SARON-based mortgages, the average margin has increased by 0.20 percentage points, almost equivalent to a full rate hike.

Interest Rate Market

The Swiss interest rate swap curve remained largely unchanged and showed remarkable stability in July. Maturities up to two years continue to trade below the SARON rate, and so remain in negative territory, while longer maturities show a positive slope and remain positive.

Short-term maturities now imply a lower probability of another key rate cut to –0.25% in September and no longer signal such a move, as was the case prior to the SNB’s monetary policy decision in June. Until the next monetary policy assessment, market expectations for a further SNB move are likely to remain volatile.

Swiss monetary policy

Inflation in Switzerland turned slightly positive again in June, after a negative annual inflation rate of –0.10% was recorded in May for the first time in years. Among economists, it is debated whether this points to an initial stabilization or merely represents a brief interruption in the broader downward trend. On the one hand, base effects are likely to slightly increase inflation over the coming months. On the other hand, the ongoing global economic slowdown is exerting downward pressure on prices. Which of these forces will prevail – and whether this would justify further easing by the SNB – remains open for now.

With the US government announcing that, as of August 8, 2025, punitive tariffs of 39 percent will be imposed on selected Swiss exports unless an agreement is reached by that date, Switzerland’s external economic environment is changing significantly. Since the pandemic, Switzerland’s export structure has shifted strongly towards the US. In 2024, almost one in five Swiss export francs went to the US, and the trade surplus reached 5% of GDP. This economic concentration compensated for weakness in Europe – especially Germany – but now, in combination with growing geopolitical asymmetry, creates an exposed risk profile. Under Trump’s tariff policies, a one-sided shock threatens to destabilize Switzerland’s export structure and expose macroeconomic vulnerabilities.

These new tariffs would place a substantial burden on the Swiss economy. Compared globally – and especially relative to neighboring EU countries (15% US tariffs) and the United Kingdom (10% US tariffs) – Swiss companies face a significant competitive disadvantage. Independent early estimates project a reduction in Swiss GDP of around 0.3% to 0.6%. Such a sharp economic downturn could trigger additional deflationary pressures and thus increase the likelihood that the SNB will lower its key interest rate into negative territory as early as September.

Foreign monetary policy

At its most recent meeting, the US Federal Reserve, as expected, opted for another interest rate pause. However, the vote within the monetary policy committee attracted attention: two of the seven Fed Governors voted against the decision. Such a dual dissent on the Board has not occurred in more than 30 years. While disagreements among the regional presidents are relatively common, such a split at the Governor level is seen as a clear signal of growing tensions and increasing uncertainty about the Fed’s future policy path.

So far, the inflationary effects of the recent tariffs have been less pronounced than initially feared. Many companies restocked inventories early, which likely alleviated some of the price pressure. At the same time, planned trade agreements and the prospect of lower tariffs suggest that the pricing impact may be smaller and more delayed than expected. Against this backdrop, the two dissenting Fed Governors still see the inflation trajectory moving toward the 2% target. At the same time, they now place greater emphasis on risks in the labor market. While the labor market remains robust, signs of weakening are increasing. From their perspective, this already warranted an interest rate cut at the July meeting.

Fed Chair Jerome Powell left the door open for a rate move in September, but refrained from making any firm policy commitments. The Fed’s stance remains clearly data-driven. We expect that internal pressure within the committee will increase over the coming weeks. Provided inflation remains moderate, a key rate cut in September currently appears to be the most likely scenario.

Mortgage rates

At the end of July, fixed-rate mortgage rates were roughly at the same level as in the previous month and, much like market rates, only showed minor volatility. However, the growing disparity between providers is notable. While some banks are increasing their credit margins to ensure profitability in the current environment, other, more competitive lenders are offering significantly more attractive terms. A clear trend is also visible with SARON-based mortgages.

Average spreads have increased by more than 0.20 percentage points since the beginning of the year, which is nearly equivalent to a full rate step. Here as well, there are significant differences among providers. In addition to comparing interest rates, it is currently especially important to review other contract terms such as affordability, loan-to-value requirements, and amortization conditions, which can vary considerably from bank to bank.

Download our assessment of the interest rate and mortgage market: DE | EN