With the “big step in the interest rate” the SNB has indicated that it is indeed willing to resist further appreciation of the franc. Low inflation provided the necessary stimulus. Signs of an economic slowdown and the great uncertainty create urgency.
Key interest rates have been cut by 50 per cent to just 0.5 per cent The decision of Christmas some economists had hope for the Swiss National Bank (SNB), but not the majority.
It is indeed a sign of some urgency that the SNB has presented a large reduction Philip BurckhardtFixed income Strategies and Portfolio Manager at Lombard odier IM. “We also expect further deflationary factors for the year ahead, such as falling energy prices or a lower reference interest rate, which should have an impact on rents in the new year.
It is indeed possible that the SNB wanted to send a clear signal about the currency. That is to say, that no understanding will be accepted and in order to stop possible speculation at an early stage. The likelihood is increasing that “the SNB will again make greater use of the monetary policy instrument of foreign exchange market interventions,” he continues.
Succumb to temptation
The move from the economist at Migros Bank is not so positiveSantosh Brivio, seen “it (the SNB) gave in to the temptation to signal against the difficult situation in terms of the economy and currency and a large increase in interest rates. “But the effect will remain manageable,” he is sure.
“With this measure, the SNB is signaling that it wants to prevent the expected interest rate cuts from the european Central Bank (ECB) and the US Federal Reserve (Fed),” says von. Mabrouk Chetouanethe head of global market strategy at Natixis Investment Managers.”However, the scope for further interest rate cuts continues to diminish, and the interest rate cuts to date raise the question of what other instruments are still available to the SNB.”
intervention in the foreign exchange market if necessary
At the media conference, the President of the SNB emphasized it Martin Schlegelin order to the franc, that the two available resources will continue to be used if necessary.“Interest rate cuts remain our main tool if monetary policy needs to be eased further.At the same time, we are still ready to intervene in the foreign exchange market if necessary,” he said at the media conference.
Words where to be followed by actions
It had already been said by the bank’s chief economist J. Safra Sarasin Karsten Junius meaningful reduction is described as necessary. With clear guidance ahead of a further cut in September, the SNB has already tired the potential of using this as a substitute for a further cut in the interest rate.
In the SNB’s usual cautious style, this does not seem so urgent: “We will continue to closely monitor the situation and adjust monetary policy if necessary to ensure that inflation remains within a range of price stability in the medium term.”
Inflation lower then expected again
The necessary scope for the major reduction was mainly driven by price developments.”Onc again inflation was lower than expected from the last assessment,” writes the SNB.
“Uncertainty about the economic outlook has increased over the past few months. In particular, the future shape of economic policy in the US remains uncertain, and political uncertainty has also increased in Europe,” the assessment says.
Pain threshold for the euro exchange rate
There have also been renewed appeals from industry that the SNB should not allow the franc to continue appreciating against the euro. “The interest rate cut is a step in the right direction,” says Nicola Tettamanti,President of Swissmechanic. “But the strong franc continues to have a huge impact on SMEs.”
According to a survey, around 85 percent of association member companies consider the effects of a weak euro to be negative to very negative, and 53 percent see a direct negative impact on their order intake. Most SMEs believe that the threshold of pain has been reached at the Euro exchange rate of 0.95.
Today’s decision also increases the likelihood of a return to negative interest rates in Switzerland.
– What impact will the Swiss National Bank’s interest rate cut have on Swiss equities and investor strategies?
Interview Between Time.news editor and Philip Burckhardt,Fixed Income Strategies and Portfolio Manager at Lombard Odier IM
Time.news Editor: Good morning,Philip. Thank you for joining us today to discuss the recent bold move by the Swiss National Bank (SNB) regarding interest rates. The cut to 0.5% certainly caught many by surprise. What do you think the SNB is trying to communicate with this decision?
Philip Burckhardt: good morning! I appreciate the opportunity to discuss this crucial topic. The SNB’s decision to cut interest rates reflects a clear urgency to stabilize the economy. Given the signs of an economic slowdown and heightened uncertainty—exacerbated by low inflation—the bank is signaling its willingness to resist further appreciation of the franc, wich is vital for maintaining Switzerland’s economic competitiveness.
Time.news Editor: so,you see this as a strategic move to combat potential deflation? How do you expect this will affect Switzerland’s economic landscape in the coming year?
Philip Burckhardt: absolutely. The SNB is not merely reacting to current conditions but is also anticipating further deflationary pressures in the year ahead. Factors such as declining energy prices and the potential for reduced reference interest rates will likely have ripple effects throughout the economy, including on rents. This proactive stance is essential as it aims to stave off a protracted deflationary period that could hamper economic growth.
Time.news Editor: That’s interesting. Many observers had mixed feelings about the prospects of such a cut prior to the announcement. What does this bold reduction in interest rates signify for investor sentiment and market dynamics?
philip Burckhardt: Investor sentiment can be quite sensitive to central bank decisions, and this large rate cut is highly likely to cause a shift in perception. It demonstrates that the SNB is serious about addressing current economic challenges. Investors may view this as a signal to adjust thier strategies accordingly, potentially leading to greater investments in Swiss equities or other assets as they seek to capitalize on the resulting market volatility. Though, we must remain cautious, as uncertainty still looms.
Time.news Editor: You mention uncertainty—a key theme that has emerged in economic discussions recently. What are the main factors contributing to this prevailing uncertainty, notably in the Swiss context?
Philip Burckhardt: Several factors are at play. Global economic conditions, including geopolitical tensions and trade dynamics, create an unpredictable surroundings. In Switzerland specifically,we are grappling with the effects of a strong franc,which impacts exports and overall economic growth. Additionally, as we approach what many economists are calling a potential economic crossroads, households and businesses are understandably hesitant to make significant financial commitments amidst such volatility.
Time.news Editor: That’s a comprehensive overview, Philip. Before we conclude,do you have any recommendations for investors navigating this complex landscape?
Philip Burckhardt: It’s essential for investors to stay informed and remain flexible. Diversifying portfolios to include a mix of asset classes can help mitigate risks associated with economic fluctuations. Additionally, keeping an eye on shifts in fiscal and monetary policy will be crucial, as these can considerably influence market trends. Lastly, adopting a long-term outlook can help ride out the uncertainties we face today.
Time.news Editor: Thank you,Philip,for sharing your insights and expertise. It seems we have quite an unpredictable economic journey ahead, and your analysis will undoubtedly be valuable to our readers.
Philip Burckhardt: Thank you for having me! It’s always a pleasure to engage in these discussions, and I hope I could provide some clarity amid the complexities we face.