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Swiss National Bank (SNB) Vice President Martin Schlegel said in an interview with “CH Media” that negative interest rates put a strain on banks’ interest margins. “Since we crossed the zero line, they’ve had higher interest income from the money they’ve lent,” says Schlegel.
How much interest will be paid on savings is a matter of competition between banks. However, it can be argued that interest margins have fallen almost steadily over the past few decades, especially with negative interest rates. Meanwhile, interest margins have risen slightly again, but are still below the historical average.
Less than 1000 banknotes in circulation
According to the SNB Vice-President, the circulation of small notes such as 10, 20 and 50 denominations is still increasing slightly. “First of all, it is the value of circulation that has decreased, mainly due to the decline in the 200 and 1000 banknotes.” The latter was often used as a store of value. Since there is no interest in cash, the shares of banknotes in circulation have decreased since the interest rate hikes.
Thus, in times of negative interest rates, withdrawing cash and depositing it in a bank vault was probably more attractive to many than it is today. “A year ago, when we raised the base rate in June and crossed the zero percent mark in September, 1,000 notes flowed back into the SNB through banks and the post office,” Schlegel says. Nearly ten billion francs have flowed back into the SNB in the form of 1000 banknotes since the rate hike.
More short mortgages
So far, the SNB has not seen any negative impact of the turn in interest rates on banks in Switzerland. For example, according to Schlegel, bank defaults are very low. Currently, the Central Bank sees no signs that interest rate hikes pose a threat to financial stability.
The interesting thing, according to Schlegel, is that there’s been a big shift in mortgages: from long to short terms. For a long time, interest rates on short-term mortgages such as Saron mortgages were even lower than on long-term mortgages.
As a result of the shift to short maturities, interest costs for many have increased more slowly than the SNB key rate. For a long time, this increase could not be fully transferred to mortgages. ‘This is no longer the case. Short-term and long-term mortgage interest rates have converged,” he said. The fragility of the real estate market has increased in recent years. There is a risk of price correction.
inflationary pressures continue
At this time, the SNB cannot rule out that further tightening of monetary policy will be necessary to achieve its price stability objective. Despite the recent decline in inflation, fundamental inflationary pressures continued to increase. The risk of inflation to exceed 2 percent in the medium term continues. (SDA/you)
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.
