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SNB in pursuit of relief from the strong currency curse

Anyone feeling disappointed about the ECB’s decision to leave its interest rates unchanged may skip the Swiss National Bank’s quarterly policy assessment scheduled for this Thursday with an easy mind. Economists expect the SNB’s interest rate to remain steady at minus 0.75 percent, the most negative in the world.

The SNB’s main objective of protecting the franc from extreme appreciation in relation to euro has become proverbial. For many years the Swiss National Bank didn’t take any actions to change its monetary policy, sticking to its commitment to limit the value of the franc against the euro. If there is a crisis, the SNB’s clients knew for sure that their assets will be safe. 

A thunderstorm erupted in January last year when the SNB officials decided to provide an economic stimulus to the Swiss economy by pushing its main policy interest rate into negative territory. This decision, although being controversial for the central bank of Switzerland, actually did its work (the country’s GDP expanded 0.6 % this year – the greatest pace since 2014). The affluent state’s financial system remained undamaged. In fact, it still functions at its full capacity – people keep their assets on the bank accounts and don’t try the old proven method of saving money under mattresses. Nowadays, Swiss franc trades without significant fluctuations versus dollar and euro and its volatility remains slow.

Even though the overall equilibrium is maintained, the SNB failed to find a proper way of avoiding the negative effect of interest rates on the pensions and insurance industry. The debates about the acceptability of policy of low interest rate are still unfinished. But, at the same time, nobody knows how the Swiss economy will react if the SNB decides to return to positive interest rates. Therefore, we may be sure that the SNB will justify its decision to keep rates on hold this Thursday.

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