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Swiss National Bank President Thomas Jordan (60) is doing what everyone expected: he turns the SNB interest rate screw again and raises the prime rate by a quarter point to 1.75 percent. This is the fifth consecutive rate hike. Within a year, the key interest rate in Switzerland rose from minus 0.75 percent to 2.5 percent.
This has direct consequences for savers, landlords, consumers and tenants in Switzerland. Blick explains what a rate hike means and how interest rates, inflation and the economy will continue in Switzerland.
Why did the SNB raise interest rates?
Inflation is more stubborn than many experts expected. According to the SNB forecast, inflation will rise above the two percent threshold by 2025. SNB is targeting a value below this threshold. Only then can he talk about price stability and avoid further rate hikes. “Without today’s rate hike, the medium-term inflation forecast would be even higher,” Jordan says.
When is the interest rate cut in Switzerland?
SNB does not allow itself to be looked at on cards. The US Federal Reserve paused interest rates in mid-June, although interest rates rose much more sharply. We haven’t gotten that far in Europe yet. The SNB is signaling another rate hike in September. At least: The SNB has now slowed a bit to fight inflation, the latest rate hike the smallest since the return in interest rates a year ago.
How is the Swiss economy doing?
Most companies can handle increases in interest rates and the strong Swiss franc is no longer an issue. Because it makes it cheaper for companies to purchase raw materials, finished products or semi-finished products from abroad. Overall, the Central Bank says the Swiss economy will grow by about one percent this year. However, even this moderate growth is not guaranteed if there is a major contraction in the global economy. Consumption remains an important pillar, although falling real wages reduce purchasing power and therefore consumers’ willingness to buy.
Will the fight against inflation be won soon?
NO! In Switzerland, although inflation decreased slightly, it stubbornly remained above 2 percent. Now the price increases in Germany are making themselves felt. In addition, rent increases will not affect inflation until autumn and will continue to push inflation up.
What does the rate decision mean for tenants?
Nothing is good! SNB Chairman Jordan is also aware that rents in Switzerland will rise as a result of interest rate hikes. The problem: rents make up a large part of the shopping cart that measures inflation. In other words, rising rents fuel inflation. There is a risk of a vicious circle, a kind of annuity-interest spiral.
When asked by Blick, the SNB Chairman answers unequivocally: “If interest rates do not rise, there is a risk that we will have to pay a much higher price later on. We should not make the mistake of fighting inflation too late.” The benchmark interest rate, which is decisive for tenants, can be expected to rise again in autumn or winter.
What does the interest rate decision mean for property owners?
Anyone with a Saron mortgage will pay a quarter percent more interest starting Friday. In the case of a fixed rate mortgage, on the other hand, interest rate increases are more or less exhausted. However, a downward correction is not expected. Experts surveyed by Blick say the level of fixed-rate mortgages is unlikely to change by the end of the year. This means that for a ten-year fixed-rate mortgage, the interest rate should be around 3 percent. So if you’re willing to pay a little more to plan for security, you should think twice about switching to a flat rate mortgage from Saron.
Are interest rates rising for savers now?
Yes. Immediately after the SNB decision, Valiant, Zürcher and the first banks such as Graubündner Kantonalbank or Neobank Yuh raised interest rates for savers. Others may follow. However, it should be noted that inflation is still significantly higher than the savings rate and the bank account rate is still negative in real terms.
Will Frank continue to stay strong?
This is good news for anyone going abroad for a vacation. Higher interest rates strengthen the Swiss franc. In addition, SNB is currently selling foreign currency to shrink its balance sheet. This also makes the franc more difficult and makes vacations abroad a little cheaper.
What lessons does SNB learn from the CS debacle?
The SNB also released its so-called Financial Stability Report on Thursday, and it gives a lot of credit to Credit Suisse’s demise. One thing is clear: a bank can go bankrupt even if the legal requirements for capital and liquidity are met. This means that more indicators are needed that will allow a bank to be in trouble – and above all to recognize a loss of confidence – sooner. And tools that can better buffer huge and fast cash outflows.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
