Decoding the SNB's key rate cut
On September 26, 2024, the Swiss National Bank (SNB) announced a further reduction in its key interest rate, from 1.25% to 1.00%. This is the third reduction since the beginning of the year, and marks an accommodating monetary stance in the face of inflation that is deemed to be under control. For real estate professionals and borrowers alike, this decision raises many questions. What are the reasons behind it, and what repercussions will it have for the Swiss economy, particularly in the real estate sector?
The SNB justifies this reduction by the return of inflation to the target range of 0% to 2%, deemed compatible with price stability. In August, Swiss inflation stood at 1.1% year-on-year, a level that allows the SNB to relax its monetary policy. The outlook for 2024, 2025 and 2026 also shows forecasts of stability, reinforcing the idea that inflation is under control.
In addition to keeping prices under control, the SNB also wishes to prevent the Swiss franc from depreciating too sharply. By lowering its key interest rate, the SNB is following the major international trends of monetary easing, while ensuring that Swiss exporters, who are often penalized by an excessively strong franc, remain sufficiently competitive.
One of the immediate effects of this rate cut is an expected reduction in mortgage rates. Borrowing conditions are becoming more favorable, which may encourage new buyers to take the plunge, particularly in a context where mortgage rates have been falling steadily since the beginning of the year.
As Arthur Jurus of Oddo BHF Switzerland points out, the rate applicable to lease contracts is also set to fall, from 1.75% to 1.50% in December. Good news for tenants, who could see their rents adjusted downwards in the coming months.
While the SNB's decision is viewed positively by borrowers and tenants alike, it is not without risks. On the one hand, the franc's depreciation could, in time, reinforce inflationary pressure on imported goods. On the other hand, lower key interest rates make investment in real estate more attractive, which may exacerbate the rise in property prices. It should also be pointed out that banks remain cautious, still demanding strict conditions for granting loans, such as a 20% equity requirement.
Experts anticipate that the SNB could continue on this path. By March 2025, some analysts are forecasting a further reduction in the key interest rate, down to 0.5%, with potential effects on mortgage policy and economic stability. However, the SNB retains the flexibility to adjust its policies in line with global market developments and currency fluctuations.
The SNB's decision to lower its key rate to 1% reflects a context of confidence in the face of controlled inflation. However, the impact on the real estate market, mortgages and rents shows that this decision could be doubly beneficial for borrowers and tenants, while at the same time entailing risks for long-term price stability.
Sources
rts.ch - Article
rts.ch - Article
Why this further cut?
The SNB justifies this reduction by the return of inflation to the target range of 0% to 2%, deemed compatible with price stability. In August, Swiss inflation stood at 1.1% year-on-year, a level that allows the SNB to relax its monetary policy. The outlook for 2024, 2025 and 2026 also shows forecasts of stability, reinforcing the idea that inflation is under control.
In addition to keeping prices under control, the SNB also wishes to prevent the Swiss franc from depreciating too sharply. By lowering its key interest rate, the SNB is following the major international trends of monetary easing, while ensuring that Swiss exporters, who are often penalized by an excessively strong franc, remain sufficiently competitive.
Impact on the real estate market
One of the immediate effects of this rate cut is an expected reduction in mortgage rates. Borrowing conditions are becoming more favorable, which may encourage new buyers to take the plunge, particularly in a context where mortgage rates have been falling steadily since the beginning of the year.
As Arthur Jurus of Oddo BHF Switzerland points out, the rate applicable to lease contracts is also set to fall, from 1.75% to 1.50% in December. Good news for tenants, who could see their rents adjusted downwards in the coming months.
What risks lie ahead?
While the SNB's decision is viewed positively by borrowers and tenants alike, it is not without risks. On the one hand, the franc's depreciation could, in time, reinforce inflationary pressure on imported goods. On the other hand, lower key interest rates make investment in real estate more attractive, which may exacerbate the rise in property prices. It should also be pointed out that banks remain cautious, still demanding strict conditions for granting loans, such as a 20% equity requirement.
What are the forecasts for 2025?
Experts anticipate that the SNB could continue on this path. By March 2025, some analysts are forecasting a further reduction in the key interest rate, down to 0.5%, with potential effects on mortgage policy and economic stability. However, the SNB retains the flexibility to adjust its policies in line with global market developments and currency fluctuations.
Conclusion
The SNB's decision to lower its key rate to 1% reflects a context of confidence in the face of controlled inflation. However, the impact on the real estate market, mortgages and rents shows that this decision could be doubly beneficial for borrowers and tenants, while at the same time entailing risks for long-term price stability.
Sources
rts.ch - Article
rts.ch - Article