Thank you dear National Bank!: That’s why the interest rate decision helps all of Switzerland

Still: There’s a small bottle of Prosecco inside. The Central Bank is helping many players in the Swiss economy by foregoing further interest rate hikes.

One percent economic growth

For example, the export sector, which is struggling with economic weakness in its most important sales markets. It would be very harmful for the Swiss Franc to gain more value. However, domestically focused companies also benefit because corporate credit costs do not increase further.

All this helps the Swiss economy, which is currently going through a difficult period and managed to recover in the second quarter. A 1 percent growth for the whole year now seems possible. The Central Bank does not stifle the unstable economy with monetary policy.

But homeowners and even tenants can be happy, too. Mortgage interest rates are not rising any further; Interest rates may even fall slightly again in the long run. However, interest rate cuts are not expected to be this rapid, the time has not yet come for this and inflation pressure is still very high.

No action required

Until the mortgage reference interest rate adjusts to previous interest rate increases, there is a risk of further rent increases. After all: The increase in the reference interest rate is likely to end in mid-2025, as the Central Bank has now refrained from increasing interest rates and the peak interest rates may have been reached. This means the end of rent increases is near.

What made the Central Bank’s decision easier was that inflation in Switzerland is currently at 1.6 percent and there is no need for urgent measures. And monetary policy can do nothing against the impending increase in inflation. First of all, this can prevent the economy from overheating and moderate import price increases.

But no interest rate increase helps against politically regulated price increases, such as a VAT increase, an officially sanctioned increase in electricity tariffs or a mechanism for calculating the reference interest rate for rents.

The calculation should work

In other words, the Central Bank accepts that inflation will be above the 2 percent target by the end of 2024. This means consumers need to be patient until prices drop again. Inflation will fall below this target, which the SNB defines as price stability, only in 2025.

There is still hope that the Central Bank’s calculations will work. He accepts some inflation in the long term and hopes that no external shocks will disrupt his forecasts. For example, because a harsh winter increases oil or gas prices. Because then they would have to increase interest rates again. But at the moment the SNB is doing everything right, reacting to the situation in Switzerland and not paying attention to what its colleagues at other central banks are doing.