Swiss financial experts welcome Federal Reserve interest rate cut

The Swiss Exchange reacted positively to the US announcement Keystone

Representatives of two major Swiss financial institutions have welcomed the decision by the United States Federal Reserve to reduce key interest rates by half a percent. They say the Swiss economy will probably not suffer as a result.

The Swiss markets backed this positive analysis, with the Zurich Swiss Exchange’s SMI closing on Thursday down just 2.1 points at 8116.8, a drop of only 0.03 per cent on Wednesday’s closing figure.

The chief economist at UBS Warburg, Klaus Wellershoff, told swissinfo on Thursday that the Federal Reserve decision clearly demonstrated concern about the slowing down of the American economy.

It was a positive sign, he said, although it still remained to be seen if financial markets responded sufficiently to generate the same optimism that existed before last year’s slump.

Walter Metzler, the head of financial market analysis at Credit Suisse, echoed the sentiment. But he said the half a percent cut was probably not enough.

Metzler said the rate cut was unlikely to have a negative impact on the Swiss economy.

“Export demand will not crash and will therefore not drag the Swiss economy down. Of course, the Swiss franc has appreciated significantly against the US dollar but we don’t think the overall effect will be that negative.”

The growth outlook for Europe, which is Switzerland’s main trading partner, is still bright, said Metzler. He added that this was probably the main reason why the European Central Bank(ECB) and other central banks would probably not follow the American lead immediately.

“Until recently the euro was very weak and if interest rates were lowered in Europe there is a risk that the euro would decline again. The ECB will probably wait for the euro to stabilize and only if it were to appreciate much more would the ECB feel right about relaxing monetary conditions.”

by Paul Sufrin