The Swiss National Bank (SNB) is easing its monetary policy for the third time in a row and lowering the policy rate by 25 basis points to 1.0 percent. The SNB’s move comes in response to persistent economic weakness.
Philipp Merkt, Chief Investment Officer (CIO) at PostFinance, believes that the SNB’s decision is understandable and appropriate given the current conditions:
The SNB is using the leeway created by low inflation and reacting to persistent domestic economic weakness with a cut in interest rates. The main aim is likely to be to boost investment activity in Switzerland.
The core inflation rate has recently stabilized at around one percent, which is lower than the SNB itself had expected. In addition, falling electricity prices and the lower risk of a higher reference interest rate – and the associated higher rents – have further weakened the long-term inflation outlook. At the same time, the domestic economy remains weak. The renewed interest rate cut will aim to further incentivize companies and individuals to invest. Property owners will feel this mainly in the form of cheaper SARON mortgages. Interest rates on long-term mortgages are also likely to fall, but only slightly given their already very low level. For savers, this decision could mean lower interest rates on accounts in the future.
According to Philipp Merkt, however, the interest rate cut has both a domestic component and an international one:
The interest rate cut is also a reaction to changing international conditions. The leading central banks have begun loosening their monetary policy and are likely to continue doing so over the next 12 months. With three interest rate cuts in a row, the SNB has taken steps to prevent the Swiss franc from becoming too attractive.
This would affect the Swiss export sector in particular, which has gradually recovered in recent months and made a significant contribution to economic growth this year.
Chief Investment Officer
