The SNB informs How the Swiss banks are doing
The Swiss National Bank (SNB) has slightly lowered its conditional inflation forecast. Even with the new key interest rate, inflation is likely to move towards 1 percent. blue News broadcasts live.
20.06.2024, 07:50
20.06.2024, 11:07
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- The Swiss National Bank has announced its latest assessment of the Swiss financial market, including the economic risks.
- The SNB is lowering the key interest rate by 0.25 percent to 1.25 percent. This will make loans cheaper.
- The SNB calls for a more prudent calculation of core capital and a strengthening of equity capital for parent companies in order to remedy weaknesses in capital adequacy regulation.
- Due to the takeover of Credit Suisse, UBS has been given a transitional period until 2030 at the latest to meet the higher capital requirements.
According to the SNB, price stability, i.e. inflation of 0 to a maximum of 2 percent, is guaranteed with the key interest rate lowered to 1.25 percent. In its latest forecast, it assumes that inflation will average 1.3% in 2024. Values of 1.1% and 1.0% are now expected for 2025 and 2026. A value of over 2 percent is not estimated for any quarter in the forecast period.
The SNB has thus lowered its forecasts slightly compared to its last assessment in March. At that time, it had predicted annual averages of 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, assuming a key interest rate of 1.50%.
Room for further cuts
The underlying inflationary pressure has fallen again compared to the previous quarter, the SNB explains the slight revision. This reflects slightly lower second-round effects
The SNB's forecasts are always based on the assumption that the SNB key interest rate will remain at the current interest rate level over the entire forecast period. Relatively low inflation forecasts therefore increase the scope for the monetary authorities to lower interest rates. Many economists are therefore expecting a further interest rate cut at one of the next monetary policy assessments.
Gradual recovery of the economy
The SNB is sticking to its previous assessment of economic growth for the current year. It continues to forecast growth in gross domestic product (GDP) of around 1%. For 2025, it expects growth of around 1.5%.
The moderate growth in Switzerland is likely to continue in the coming quarters, according to the report. In this environment, unemployment should continue to rise slightly and production capacity utilization should fall slightly. According to the SNB, economic development should gradually improve in the medium term, supported by somewhat stronger foreign demand.
This forecast is subject to considerable uncertainty, with developments abroad representing the main risk. Among other things, it cites geopolitical tensions and inflation abroad remaining higher for longer than expected.
As usual, the SNB also comments on the mortgage and real estate market. Momentum on these markets has slowed over the last few quarters. However, the vulnerability of these markets remains, according to the communiqué.
SNB continues project for digital central bank money
The Swiss National Bank (SNB) intends to continue its pilot project with digital central bank money (Central Bank Digital Currency CBDC) for at least two years. The SNB is confident that further financial institutions will gradually participate, said SNB Director Antoine Martin on Thursday as part of the monetary policy assessment.
"The Helvetia III project has been very successful so far," Martin told the media. With the participation of further institutions, digital central bank money could be made available for a broader range of financial transactions. The financial institutions will be informed about the opportunities to participate in due course.
First DLT-based monetary policy operation
The SNB has been making digital central bank money available to financial institutions as part of the Helvetia III project since December 2023. It issues this on the SIX Digital Exchange (SDX), which is based on blockchain or distributed ledger technology (DLT). This means that transactions with token-based bonds in Swiss francs can be settled directly on the SDX in central bank money, as Martin explained.
A total of six banks (BCV, BKB, Commerzbank, Hypothekarbank Lenzburg, UBS and ZKB) are currently participating in the ongoing pilot operation of Project Helvetia III. To date, they have processed six issues of digital bonds with transactions totaling around CHF 750 million. At the beginning of June, the SNB even became the first central bank to carry out a DLT-based monetary policy operation: It issued digital SNB Bills on the SDX.
Digital transformation
By continuing the pilot operation of Project Helvetia, the SNB is supporting the private sector in its efforts to innovate, Martin emphasized to the media. "Its success will largely depend on whether new financial market participants join, whether the transaction volume increases and whether additional financial market transactions are processed on this platform."
The continuation of the Helvetia pilot project represents an important milestone and paves the way for broader acceptance of the token ecosystem, SDX wrote in a separate press release on Thursday: "This is an important step in the digital transformation of the financial sector."
With the pilot operation, the SNB is not making any commitment to permanently introduce wholesale CBDC or digital SNB Bills, the SNB Director emphasized on Thursday.
