In its monetary policy assessment, the Swiss National Bank (SNB) decided to lower its policy rate by 50 basis points to 0.5 percent.
According to Philipp Merkt, Chief Investment Officer (CIO) at PostFinance, an interest rate cut was to be expected, but not necessarily by as much as 50 basis points:
After three interest rate cuts of 25 basis points each, the significant interest rate move comes as a bit of a surprise. It also shows, however, that the SNB sees a major risk in the appreciation of the Swiss franc and its consequences.
The effects are clearly reflected in Swiss inflation, among other things. The appreciation of the Swiss franc, particularly against the euro, is weighing on import prices, which are now 2.3 percent lower than a year ago. This is also having an impact on overall inflation, which is now only 0.7 percent, and could fall even further in the coming months. The interest rate move is an attempt to further reduce the appeal of the Swiss franc to foreign investors. If you look at domestic economic factors alone, the significant interest rate cut wouldn’t have been necessary, says Philipp Merkt:
Consumption and construction activity have stabilized, and domestic goods inflation, at 1.7 percent, is within a good range. The domestic economy alone wouldn’t necessarily have required a significant easing in monetary policy. The SNB accepts that its room for manoeuvre in times of crisis is becoming ever smaller.
Homeowners will be pleased to learn that with the sharp reduction in the policy rate, mortgages in SARON in particular will become cheaper. Although there is some potential for long-term mortgages on the downside, it is limited due to the already low levels. Nevertheless, the mortgage reference interest rate is now even more likely to fall next March, and this will benefit tenants. However, private households will probably also have to adjust to lower interest rates on savings.
Chief Investment Officer
