Interest rate cut "not too late"

Economists believe the decision by the Swiss National Bank (SNB) to cut interest rates again can help the economy weather the worst of the global downturn.

This content was published on November 7, 2008 minutes

The SNB slashed rates by 50 basis points on Thursday following a cut of 0.25 per cent last month. The reason given was that the outlook for the global economy had worsened in recent weeks.

The SNB once again coordinated its move with the European Central Bank and individual countries. The central bank lowered the three-month target range of the Libor (London Interbank Offered Rate) to 1.5 – 2.5 per cent.

It is widely expected to repeat the measure in December, with some economists predicting that rates will fall below one per cent next year.

Bank Sarasin economist Alessandro Bee believes this would help stop the franc appreciating any further against the dollar, the euro and other currencies. The recent rapid strengthening of the franc has harmed the Swiss export industry.

"This is an appropriate response to the economic turmoil and particularly the foreign exchange markets," Bee told swissinfo.

Alexis Körber from economic research institute BAK Basel Economics told swissinfo that the rate cut has come early enough to save the Swiss economy from the worst ravages of the global downturn.

"Swiss growth rates have been consistently robust, so this measure has not come too late. This will help avoid a huge decline in economic activity," he said.

Mortgage demands

However, economists have recently been downgrading their forecasts for gross domestic product (GDP) growth in 2009 with some of them warning of a mini-recession in Switzerland in the next two quarters.

Meanwhile, homeowners have demanded that banks act swiftly to pass on the SNB interest rate cuts to people with mortgages.

Cooperative bank Raiffeisen has announced that it will reduce its variable rate by 0.25 per cent in February. Other banks are expected to follow suit, but likewise not until next year.

Ansgar Gmür, director of the Swiss Homeowners' Association, accused banks of cashing in on the consecutive central bank interest rate cuts that have reduced the target rate by 0.75 per cent within the last four weeks.

Gmür has contacted retail banks to demand an immediate quarter per cent drop in mortgage interest rates followed by the same reduction at the beginning of 2009.

"It is not right that banks are doing nothing for the next few months. By taking this approach they will make a lot of profit without passing this on to their customers," he told swissinfo. "It is important for the economy as a whole that homeowners see the benefit of these cuts."

Tenants would also benefit from a reduction in mortgage repayments as Swiss regulations oblige landlords to pass on their savings.

Regula Mühlebach of the Swiss Tenants' Association accused the banks of "swimming in money" thanks to the SNB rate cuts and told German-language Swiss radio that it was their responsibility to pass some of these profits on to ordinary people.

swissinfo, Matthew Allen in Zurich

GDP forecasts (2009)

BAK Basel Economics: 0.7%

KOF Business Institute: 0.3%

Credit Suisse : 1%

UBS: 0.2%

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