The Chairman of the SBA (Swiss Banker's Association) stated in a recent speech that the negative interest rate policy of the SNB (Swiss National Bank) is affecting the economy negatively in many ways and that the SNB should revise this rule to help the Swiss economy grow faster.
The Chairman also stated that hopes for a reversal of this negative interest rate policy are low. However, if Switzerland continues to ignore this major, it could harm the Swiss economy. The association believes that this SNB policy may also impact real estate markets, where investors can no longer find the good returns they could count on previously, and have started investnig elsewhere. This attitude has also affected the investment and pension sectors.
How The Banks Are Affects
In his speech, the chairman of the SBA stated that Swiss banks are the biggest victims, since the negative interest rate policy applies directly to banks that are leaving funds with the SNB. Banks that want the luxury of parking funds with the SNB are required to pay a -0.75% interest rate in order to park funds there. Some Swiss banks have started passing this penalty onto their clients, depending on the size of their deposits. The SNB has now started collecting over 2 billion CHF annually through this policy.
Switzerland's policy is one of the most expensive for banks. Compared to their negative interest rates, the United States has a positive interest rate to benefit banks depositing funds with the Federal Bank of America (FBA). Europe also uses clever “refinancing” strategies to benefit both the banks and the corporate sector in the long run. The ECB (European Central Bank) has a policy where it pays banks who’ve granted more loans and mortgages to EU citizens. So, instead of having to pay a negative interest rate, banks can receive money from ECB depending on their performance in granting loans and mortgages.
Why The Franc Is Appreciating Against Other Currencies?
The Swiss Franc is seen as one of the strongest currencies in the world by investors. And in these times of economic instability, when the United States is witnessing a lower-than-expected growth of both its economy and the Dollar, and the European Union along with its Euro are facing financial downtime, the Swiss franc is the only option left for the large scale investors to store their money.
The increasing value of the Swiss Franc against other major competitor currencies has encouraged investors from all around the globe to invest in Swiss Francs. Unfortunately, this trend is not helpful for the Swiss economy.
How The Swiss Economy Is Suffering
Due to the increased value of the Swiss Franc against other major currencies like the Dollar and the Euro, the prices of imported goods have dropped below the prices of domestically made products. Many locals have started buying foreign-made goods to save money.
Exporters are also witnessing a decline in their exports due to the increased global value of the Swiss Franc. Fewer people are now importing the Swiss goods in their countries.
Negative Interest Rate, The Only Hope For The Swiss Economy?
Because more and more investors from around the world are parking their funds in the Swiss banks, the SNB has now started using the negative interest to charge the banks for leaving their funds on account, in an attempt to repel investors from buying Swiss francs. This will cause a deprection in the value of Swiss franc, which may help the Swiss economy to retain its current pace in the long run.