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The Swiss National Bank has reduced interest rates from a quarter to zero but has not gone to negative rates, because it fights to restrict its currency, which has increased on global trade tensions.
This is the first time that the Alpine country, which has been one of the few on a global scale to experiment with negative rates, has an interest rate of zero while it attacks late inflation and a Swiss franc that increases, a currency by Le Havre that investors bought in the middle of the trade war of the American president Donald Trump.
The reduction occurs after annual inflation in Switzerland has dropped less than 0.1% in May, the first negative reading in four years. The assessment of the Swiss franc – up 10% compared to the dollar this year – has reduced the cost of imports, resulting in consumer prices.
The Swiss franc has strengthened after the reduction scheduled for Thursday, with the dollar down 0.2% against the afternoon franc at SFR0.817.
A minority of traders was betting on a larger and a half cup, depending on the levels involved by Swaps markets. The franc rally after Thursday’s decision was caused by these “unrelated” bets, said BBH analysts.
SNB president Martin Schlegel said at a press conference that the bank “would not make the decision to become a light negative”. The central bank should also take into account the interests of savers, pension funds and others, he said.
Merchants have slightly reduced their bets on additional rate drops after Schlegel’s remarks, and put around 60% like the SNB to be achieved at less than 0.25% by March next year.
The yields of state bonds of two years in Switzerland, which are sensitive to the movements of rate expectations, increased by 0.09 percentage points to less than 0.10%.
SNB has also repeatedly reported the risks of financial stability in the outbreak of Swiss goods assessments in a lower interest rate environment.
Schlegel, however, has not excluded a transition to a negative territory, global trade disorders possibly forcing the bank of this path in the coming months.
“It seems that they will play in the ear, which slightly bumps on the negative rate market,” said Francesco Pesole, FX strategist to ING.
The so-called Swissie Swissie increase this year has complicated the development of policies. The SNB is trying to relieve pressure without triggering accusations of manipulation of currency from the United States, which placed Switzerland on a surveillance list during Trump’s first mandate. Analysts claim that rate reductions are a diplomatically safer path than FX direct intervention.
The SNB’s decision contrasts with the approach to waiting for the federal reserve. The Bank of England also held 4.25% prices at its last meeting.
However, the Central Bank of Norway unexpectedly reduced the costs of borrowing on Thursday, loosening monetary policy for the first time since the start of the COVVI-19 pandemic. The force of the economy in the largest oil and gas producer in Western Europe had led him to maintain higher rates than almost all of its neighbors, notably Sweden Riksbank and the European Central Bank. But Norges Bank decided that inflation prospects were moderate enough for this to reduce rates by a quarter to 4.25%.
Switzerland introduced negative interest rates for the first time in December 2014, when the SNB set the deposit rate at less than 0.25% to stem the assessment of the franc in the midst of safe security entries.
The SNB at a stage pushed the rate to less than 0.75%, the lowest level in the world. Politics has remained in place for more than seven years, which also makes it one of the longest negative rate periods in the world until it knows it in 2022.
Thursday’s cup creates a potentially delicate situation for Swiss banks. They no longer gain interest in their reserves with the SNB, but theoretically have less justification to transmit this cost to customers.
Daniel Kalt, chief economist of UBS, the largest bank in the country, said that Zero percent was probably the most difficult scenario for banks.
“In terms of pressure on clear margins of interest, this could not be worse than with the situation we have today. With this, it is difficult for banks to justify customer billing fees as they did during the previous period of negative interest rate,” said Kalt.
