Negative rates will remain in the future too


The issue of negative rates in Switzerland remains at the heart of the economic news. The vice-p;resident of the Swiss National Bank (SNB) Fritz Zurbrügg said that the bank may continue to pursue a monetary policy based on negative interest rates in the future. However, the institution is aware of the problems that arise when rates fall below a certain threshold.

Negative rates will remain in the future too

Negative rates will remain in the future too

In statements released on Monday and reported by Reuters, Zurbrügg also recalled that the SNB is spending more money this year on interventions to avoid a strengthening of the franc.

The amount of these interventions reached high levels: in the first half of the year alone, 90 billion francs were spent on this purpose, much more than in the previous four years. However - underlined Zurbrügg - if the franc had appreciated more the negative impact of COVID on the Swiss economy would have been even higher. The exit from negative interest rates is not to be considered for the moment, he concluded.

No alternative

How can we assess the position of the SNB?

For the institute today the alternative of raising interest rates would be worse than maintaining it at the current level. As the SNB itself says, we are in a global environment of low interest rates, ie around or below zero, and it is not possible to do otherwise. But this creates problems, for example for pension funds. However, the SNB has little influence on the rates that mostly concern the latter, ie the long-term ones, given that they follow global trends explained Maxime Botteron, an economist at Credit Suisse.

However, we believe - he notes - that even zero interest rates at this time would be too high for the Swiss economy. We have not calculated exactly what the equilibrium rate might be, as it is difficult for a country like Switzerland that has an open capital market. But most likely it would still be in negative territory.

The weight of vacant homes

However, in Switzerland, and especially in Ticino, there is now an alarm regarding vacant homes, which are increasing and bringing down rents and prices. Furthermore, too much is still being built. How to take into account these negative effects on the real estate market? In fact - specifies Botteron - we are facing an excess of construction in the real estate sector, and the number of vacant homes is destined to increase further, given that many investors direct their capital towards bricks and mortar. For this reason, inflation will not rise in the medium term. Indeed, rents are an important component of the consumer price index and the downward pressure on inflation will keep rates low. It is a vicious circle..

Can it be said that the SNB is in an ‘interest rate trap’? That is, can’t find the ideal rate for the country?

Let’s say that the problem is that there would be a need for different interest rates for the different markets, that is, for the real estate one and that of shares and bonds, and it is not possible to separate the various markets, since it cannot be prevented. to the capitals to pass from one to another. It would take a higher rate for the housing market than for the financial markets, but applying this rate would be detrimental to the rest of the economy. The SNB has the difficult task of having to assess the costs and benefits of current interest rates for the economy as a whole.

Monetary policy choices are always controversial and delicate. But they are often dictated by international conditions. © KEYSTONE / Anthony Anex

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