ZURICH: Swiss National Bank (SNB) policymakers watching the effects of negative interest rates on the economy are worried about the real estate bubble their policies are helping to fuel.
Aware that any change in their position below zero could disrupt currency markets, officials should instead point to the availability of regulatory tools to cool the real estate market as soon as they make their decision soon.
While they can refrain from recommending a reactivation of the suspended bank capital cushion at the start of the pandemic, policymakers can at least reiterate Vice President Fritz Zurbruegg’s stern warning this month that real estate risks continued to accumulate.
Switzerland has experience in managing real estate bubbles amid the constraints of its ultra-accommodative monetary policy, and has already used these so-called macroprudential tools to control gains. The country is one of several, from New Zealand to Denmark, whose real estate markets have skyrocketed in the wake of the pandemic.
“If you are in charge of financial stability you have to be serious and say tough things,” said Stefan Gerlach, chief economist of Zurich-based EFG International AG, who was deputy governor of the central bank of Ireland. following the collapse of his home. . “You don’t know when you’re going to have a car accident, so you always have a seat belt in place. “
Any commentary on the real estate market will soon accompany the SNB’s quarterly decision in Zurich. He is almost certain to reiterate his buzzword for the franc as being “much appreciated” to justify its accommodative monetary policy with the world’s lowest interest rate of -0.75%. The authorities will publish new growth and inflation forecasts.
There is a question mark over participation in the decision of President Thomas Jordan, who has been harassed by medical treatment since August. While he is in frequent contact with his colleagues, an official return to work date has yet to be set, Zurbruegg said on September 11.
Designed to prevent the currency from rising too sharply, the SNB’s ultra-easy policy of negative rates and one-off interventions on the foreign exchange market has protected economic growth to the detriment of a buoyant real estate market. An indicator from UBS Group AG judges the situation to be close to a bubble.
In effect since 2013, the countercyclical capital buffer on banks’ mortgage assets was deactivated in March 2020 as part of an effort to free up 26 billion francs ($ 28 billion or RM 117.41 billion) capital for financial institutions to avoid a credit crunch caused by the pandemic.
The SNB only makes recommendations on the use of the tool, and any decision to deploy it is a political judgment made by the Swiss government.
“It may come back because now the credit supply is good, in this and many other respects the economy is picking up,” although officials may also choose to wait to assess the effect of a fourth pandemic wave, said Ursina Kubli of Zuercher Kantonalbank. “I don’t think it will hold back the market that much, but it does have a signal effect.” Bloomberg