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The Swiss National Bank has reduced interest rates to zero with a quarter point, but did not go as far as negative rates, because it is fighting to limit its currency, which has risen on global trading tensions.
It is the first time that the Alpine country, which is one of the few worldwide to experiment with negative rates, has an interest of zero because it tackles the lagging inflation and a rising Swiss franc, a harbor currency that investors have bought investors in the midst of the trade war of US President Donald Trump.
After the annual inflation in Switzerland, the cut fell to minus 0.1 percent in May, the first negative reading in four years. The appreciative Swiss Frank – 10 percent this year against the dollar – has reduced import costs and dragged consumer prices to reduction.
The Swiss Frank reinforced after the expected reduction of Thursday, with the dollar by 0.3 percent against the Frank on SFR0.817.
A minority of traders had bet on a larger, semi-point cut, implied by the Swaps markets according to levels. The rally of the Frank after Thursday’s decision was inspired by those bets that were “injured”, analysts said at BBH.
SNB chairman Martin Schlegel said during a press conference that the bank “would not make a decision to go slightly negative”. The central bank should also take into account the interests of savers, pension funds and others, he said.
Traders have somewhat cut their bets on further tariff reductions after Schlegel’s comments and brought an approximately two -thirds chance that the SNB will cut to minus 0.25 percent again in March next year.
The two -year returns of Switzerland, which are sensitive, sensitive to movements in speed expectations, rose 0.08 percentage points to minus 0.11 percent.
The SNB has also repeatedly marked financial stability risks due to rising valuations for Swiss property in a lower interest rate environment.
However, Schlegel does not exclude a switch to negative territory, whereby the unrest in global trade may force the bank on that path in the coming months.
“It sounds like they are going to play it on hearing, which somewhat tuning the market judgment about negative rates,” said Francesco Pesole, an FX strategist at ING.
The so -called Swissen’s sharp increase this year has complicated policy -making. The SNB tries to relieve the pressure without causing accusations of currency manipulation from the US, which Switzerland placed on a watchist during Trump’s first term. Analysts say that speed reductions are a diplomatic safer route than direct FX intervention.
The decision of the SNB contrasts with the constant wait -and -see approach of the Federal Reserve.
The Central Bank of Norway, however, unexpectedly lowered the interest rates on Thursday, so that monetary policy was released for the first time since the start of the COVID-19 Pandemie. The strength of the economy in the largest oil and gas producer of Western Europe has led to the rates higher than almost all its neighbors, including Riksbank in Sweden and the European Central Bank. But Norges Bank decided that the inflation views were sufficiently modest that it could lower the rates with a quarter point to 4.25 percent.
Switzerland introduced negative interest rates for the first time in December 2014, when the SNB set the Deposito rate at minus 0.25 percent to turn the frank rating in the middle of safe harbor flow.
The SNB in one phase pushed the speed to minus 0.75 percent, the lowest level in the world. The policy remained in force for more than seven years, making it also one of the longest negative periods in the world until it left it in 2022.
Thursday’s cut creates a potentially difficult situation for Swiss banks. They no longer earn interest on their reserves with the SNB, but theoretically have less justification to pass on those costs to customers.
Daniel Kalt, chief economist at UBS, the largest bank in the country, said that zero percent was probably the most difficult scenario for banks.
“In terms of pressure on net interest rate margins, it cannot be worse than with the situation we have today. This makes it difficult for banks to justify the costs of customers as they did during the previous period of negative interest rates,” said Kalt.
