ECB takes a break after the interest rate turnaround: What the July 23 decision means for Switzerland

The European Central Bank is leaving key interest rates unchanged after the increase in June. But the pause is not an all-clear: the energy shock is back, and another rate hike is likely in September. Why the CHF swap curve has already reacted and what this means for Swiss mortgages.

Six weeks after the first rate hike in almost three years, the European Central Bank is hitting the brakes without taking its foot off the gas. On Thursday, the ECB Governing Council decided to leave the three key rates unchanged. The deposit rate remains at 2.25 percent, the main refinancing rate at 2.40, and the marginal lending facility at 2.65 percent. Anyone seeing this as a sign of relief has not read the statement to the end. The central bank warns explicitly: "The effects of the energy shock on inflation have not yet been fully felt."

A break that is not an all-clear

When we reported on the interest rate turnaround in Frankfurt in June, the question arose as to whether further steps would follow. The answer as of today: postponed, not canceled. The decision for a pause was unanimous, but according to President Christine Lagarde, some governors raised the question of whether another hike should have already occurred. In September, when the central bank has new forecasts for inflation and the economy, the next increase could follow.

The very fact that the ECB is able to pause is thanks to the recent inflation data. Overall inflation in the euro area fell from 3.2 to 2.8 percent in June, with the energy component rising by 8.5 percent, less than in previous months. But these numbers come from a world that no longer exists as it did.

The ceasefire did not hold

This brings us back to the Fed decision in June. At that time, we wrote that the relief on the capital markets was borrowed, because it was based on hopes for peace in the Gulf. That is exactly what happened. The agreement between the US and Iran proved short-lived, the ceasefire was repeatedly broken, and the conflict has flared up again. Brent crude closed on Thursday above 100 dollars per barrel for the first time since May, and European natural gas is nearly twice as expensive as before the war.

The consequence for monetary policy: According to Lagarde, the risks for the inflation outlook are tilted upward, and inflation is expected to remain above target at least until mid-2027 due to high energy prices. Many observers therefore expect an increase in the deposit rate to 2.5 percent in September, and some investors are even expecting two hikes by the end of the year.

Looking back: The swap curve has long since reacted

In the June article on the ECB, we asked whether interest rates in Switzerland would now rise as well. At the short end, the answer remains no. At the long end, the market has now given its own answer. The 10-year CHF swap, which was still at 0.575 percent in mid-June, is now at 0.7725 percent, an increase of around 20 basis points. The driver is the same as in Frankfurt: yields on ten-year US Treasuries have climbed to their highest level of the year because oil prices are rising and markets are betting that the Fed could also raise rates. These yields are the pace-setters for global capital market interest rates, to which the CHF swap curve is linked.

What does this mean for mortgage borrowers?

For SARON mortgages, nothing changes. The key rate of the Swiss National Bank is decisive, and that is at 0 percent; SARON remains slightly negative. The SNB's bigger concern remains the franc, not inflation. After all: the higher European interest rates are compared to Switzerland, the lower the upward pressure on the franc. An ECB that acts again in September gives the National Bank more leeway, rather than putting it under pressure.

It's a different story for fixed-rate mortgages. The rise in swap rates since mid-June is directly reflected in the conditions for new contracts. Based on a volume of 800,000 francs, 20 basis points increase the annual interest burden of a new ten-year fixed mortgage by around 1,600 francs. Anyone facing a rollover should be aware that the direction of capital market interest rates is currently dictated by the Gulf and by the central banks, and both are currently pointing upwards. Comparing several providers is all the more important, as the margin between the swap rate and the offered interest rate differs significantly from institution to institution.

Outlook: The Fed decides next week

The rhythm of central bank weeks remains tight. On July 28 and 29, the US Federal Reserve will meet, and the situation is more tense than in June: futures markets now price in a probability of over 80 percent for a rate hike in September, and even for next week's meeting, a growing minority expects an upward move. The SNB will not act again until the end of September. Until then, anyone planning a financing should follow energy prices just as closely as the central banks themselves.

Sources:

• ECB: Monetary Policy Decisions of July 23, 2026
• Handelsblatt: ECB live blog on interest rate decision
• WirtschaftsWoche: ECB pauses key rate
• Euronews: Lagarde leaves door open for a September hike
• Bloomberg: US Treasury Yields Hit 2026 Highs as Oil Price Surge Lifts Fed Rate Bets
• CNBC: Treasury yields and oil prices, July 23, 2026
• hypothek.ch: Current swap rates