SNB's Martin: Interest rate environment in Switzerland has started to weigh on banks' profitability

Dhwani Mehta FXStreet

Swiss National Bank (SNB) Vice Chairman Antoine Martin is speaking at the post-policy meeting press conference, explaining the decision behind the 25 basis points (bps) interest rate cut to 0%.

Key quotes

Conditions relevant for Swiss financial sector have deteriorated since last financial stability report.

Trade tensions have led to significant increase in financial market volatility.

Interest rate environment in Switzerland has started to weigh on banks' profitability.

SNB supports Swiss government's package of measures for financial crisis prevention and management.

Vulnerabilities in domestic mortgage and residential real estate markets persist.

Comprehensive and timely adoption is essential for strengthening financial stability in Switzerland.

Implementation of basel III final has had no visible impact on credit market activity.

In this context, banks' capital buffers remain key.

Volumes in Swiss credit market have continued to increase, momentum picked up recently.

Non-bank financial intermediaries are a potential source of risk to financial stability.

Swiss banks can continue to operate with zero interest rate.

Market reaction

USD/CHF was last seen trading 0.15% higher on the day at 0.8191, with traders digesting the SNB’s expected interest rate decision.

Swiss economy FAQs

Where does Switzerland stand in terms of economic power?

Switzerland is the ninth-largest economy measured by nominal Gross Domestic Product (GDP) in the European continent. Measured by GDP per capita – a broad measure of average living standards –, the country ranks among the highest in the world, meaning that it is one the richest countries globally. Switzerland tends to be in the top spots in global rankings about living standards, development indexes, competitiveness or innovation.

Where does Swiss economic growth come from?

Switzerland is an open, free-market economy mainly based on the services sector. The Swiss economy has a strong export sector, and the neighboring European Union (EU) is its main trading partner. Switzerland is a leading exporter of watches and clocks, and hosts leading firms in the food, chemicals and pharmaceutical industries. The country is considered to be an international tax haven, with significantly low corporate and income tax rates compared with its European neighbors.

How does the Swiss economy impact the Swiss Franc’s valuation?

As a high-income country, the growth rate of the Swiss economy has diminished over the last decades. Still, its political and economic stability, its high education levels, top-tier firms in several industries and its tax-haven status have made it a preferred destination for foreign investment. This has generally benefited the Swiss Franc (CHF), which has historically kept relatively strong against its main currency peers. Generally, a good performance of the Swiss economy – based on high growth, low unemployment and stable prices – tends to appreciate CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.

Do commodity prices impact the Swiss Franc’s valuation?

Switzerland isn’t a commodity exporter, so in general commodity prices aren’t a key driver of the Swiss Franc (CHF). However, there is a slight correlation with both Gold and Oil prices. With Gold, CHF’s status as a safe-haven and the fact that the currency used to be backed by the precious metal means that both assets tend to move in the same direction. With Oil, a paper released by the Swiss National Bank (SNB) suggests that the rise in Oil prices could negatively influence CHF valuation, as Switzerland is a net importer of fuel.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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