Migrosbank first to react to interest rate cut

Migrosbank has announced a cut in its mortage rate Keystone

The bank run by Switzerland's largest retailer, Migros, has become the first financial institution to lower its mortgage rate following Thursday's surprise move by the Swiss National Bank to cut its key interest target range.

Migrosbank said on Friday it would cut its rate for variable mortgages by an eighth of a percentage point to 4.25 per cent.

The rate will come into force immediately for new mortgages, while it will be valid for existing mortgages from May 31.

The chief economist of the Credit Suisse financial services group, Alois Bischofberger, told German-language Swiss television on Thursday that CS would also lower its mortgage rates. However, he did not say when and by how much.

The SNB cut its key interest rate target range by 25 basis points to between 2.75 and 3.75 per cent, saying the move was in response to increased economic uncertainty.

The SNB said it intended to keep its target range within the centre of the new band at around 3.25 per cent.

Most economists had expected the bank to leave interest rates unchanged until after the European Central Bank (ECB) meeting next month.

Andreas Höfert, an economist at UBS Warburg, told swissinfo that the SNB was showing its independence of the ECB by moving faster to cut interest rates.

“After the disappointing economic statistics out of Germany on Wednesday most on the market are anticipating a cut in the ECB’s interest rates. This move by the SNB shows its independence,” explained Höfert.

The SNB’s latest prognosis on the economy was based on a decline in oil prices, as well as a sharper-than-expected downturn in the United States economy.

This cut is the first downward shift in official rates in nearly three years, and should lead to a reduction in commercial interest rates for consumers across Switzerland.

Walter Metzler, an economist at Credit Suisse, told swissinfo that a general decline in all interest rates is expected as they adapt to new market levels.

“If mortgage rates are coming down this will ease inflation in the rental part of the consumer price index,” added Metzler.

The SNB said that it now expects inflation, after a brief rise, to fall to 1.5 per cent in 2003. The bank also forecasts economic growth in 2001 of 2.2 per cent – down from 3.4 per cent in 2000 – and says this will slow to 1.6 per cent in 2003.

Höfert said he expected another 25 basis point cut in interest rates by the SNB later in the year.

by Tom O’Brien