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22 May 2013
Flash: Bearish CHF outlook reiterated by IMF report – UBS
FXstreet.com (Barcelona) - According to the UBS Research Team, “Our bearish franc view is reinforced by the IMF's recent report – the IMF advises that 'if safe haven inflows return, the SNB should consider imposing a negative interest rate on bank excess reserves'.”
In essence, this would discourage inflows, and while 'negative interest rates have potential drawbacks, including possibly intensifying pressure in the mortgage market...these are likely to be less relevant under the current circumstances in Switzerland than in other countries'.
Indeed, a policy of negative interest rates may help the SNB with its dilemma of super-loose monetary conditions warding off currency appreciation but fuelling housing markets. This is because the impact of negative interest rates on mortgage rates depends on the pass-though. If banks cannot pass through negative rates to depositors, they may increase lending rates instead to compensate for the losses they would now face from keeping excess bank reserves at the central bank.
In essence, this would discourage inflows, and while 'negative interest rates have potential drawbacks, including possibly intensifying pressure in the mortgage market...these are likely to be less relevant under the current circumstances in Switzerland than in other countries'.
Indeed, a policy of negative interest rates may help the SNB with its dilemma of super-loose monetary conditions warding off currency appreciation but fuelling housing markets. This is because the impact of negative interest rates on mortgage rates depends on the pass-though. If banks cannot pass through negative rates to depositors, they may increase lending rates instead to compensate for the losses they would now face from keeping excess bank reserves at the central bank.