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Zawya
10 hours ago
- Business
- Zawya
Franc leading Swiss back to deflation vortex, asset stockpiling: Mike Dolan
LONDON - The supercharged Swiss franc is sucking Switzerland back into a deflationary vortex that its central bank will once again struggle to escape, possibly recycling a fresh wave of financial flows back out across the world. The Swiss franc, long perceived as a haven in stressful times, has seen its broad nominal exchange rate index surge 5% since U.S. President Donald Trump's return to the White House. But this is just the latest leg of a relentless appreciation of 20% in five years and 33% over the past decade. In a small open economy, that latest move has been enough to force deflationary relapse and the first drop in annual aggregate Swiss consumer prices in four years last month. In turn, the Swiss National Bank will almost certainly cut its already meagre 0.25% interest rate back to zero this month. A return to the negative interest rate era of the eight years through 2022 now seems almost inevitable further out. Markets already see a one-in-three chance of that happening as soon as the SNB's meeting on June 19. As the last experiment showed, there's a limit to how negative rates can go - mainly because it would be cheaper for big savers to vault their own money than have banks dock more than about 0.75% of deposits annually. And so the SNB may quickly have to resume selling francs and expanding its balance sheet once again to ward off deflation. It's been here before. The SNB's balance sheet ballooned almost 10-fold over the decade to 2022, hitting more than 1 trillion francs ($1.3 trillion) at its peak. While it has shrunk since to 843 billion francs, it remains bigger than annual Swiss GDP and more than four times that of the Federal Reserve's balance sheet as a share of the U.S. economy. Even though the SNB has appeared somewhat reluctant to resume outright franc sales recently, its top brass has pointedly refused to rule out either negative rates or another protracted bout of franc intervention. A sustained reversal of the franc's fortunes may allow the country to dodge the problem of course - with much of this year's franc surge coming against the ebbing dollar, unlike the euro/Swiss rate focus of a decade ago during the euro crisis. But if "safety" flows are at least part of what's driving the Swiss currency higher this year, then it's hard to see trade or geopolitical peace breaking out anytime soon. DEJA VU AND ZEITGEIST While this may all feel like deja vu in Switzerland, a slow-motion repeat of the "frankenshock" episode, it speaks to some of the biggest trends impacting markets today and has numerous implications globally. Rebuilding SNB reserves from today's already lofty levels could put upward pressure on a range of euro debt and dollar equity assets. The SNB remains a top 50 shareholder in all seven of the top U.S. big tech megacap stocks, for example, as well as euro zone government debt. The SNB diversified away from the euro in favour of dollars during the euro debt crisis over a decade ago and now holds an equal share of both euro and dollar holdings, as Barclays analysts point out. "A reversal of that trend would not be unprecedented," they said, referring to "jitters" around the prospect of the SNB diversifying away from the dollar in light of recent trade developments. While the SNB's trade-weighted franc index is dominated by a 42% euro weighting, the dollar still commands a 14% share and the dollar, yuan, yen and sterling combined account for about a third of the total. And so a sharp weakening of the dollar, dollar-priced commodities and other dollar-linked currencies still packs a punch for Switzerland regardless of relative stability on the euro. MANIPULATOR The other complication of a renewed intervention bout is that Switzerland finds itself firmly on the radar of the Trump Treasury's "currency manipulator" report, expected by analysts to be published this month. ING's Francesco Pesole reckons one reason the SNB has been holding off from intervention so far this year is precisely because it wants to avoid being labelled a manipulator by Washington and thus face a more extreme tariff onslaught. Pesole says that with Switzerland already in the "currency manipulator" report's sights due to the country's trade surplus with the U.S., its current account surplus more broadly and its long history of currency capping, the SNB may push negative rates as far as they can go before wading back into foreign exchange markets. "Should the (U.S.) Treasury's FX report be published before then, markets may increase their bets on a 50bp rate cut in June on the view that being added to the monitoring list further reduces the scope for FX interventions," he wrote. Unlike previous franc surges, when FX purchases were the obvious solution, the SNB may now find itself "damned if it does, and damned if it doesn't." The opinions expressed here are those of the author, a columnist for Reuters (By Mike Dolan; Editing by Jamie Freed)
CNBC
a day ago
- Business
- CNBC
Investor appetite for the safe haven Swiss franc is causing problems for its central bank
U.S. President Donald Trump's trade policies have rocked global equities in recent weeks, driving investors to seek out pockets of safety in financial markets. One of the beneficiaries of the market volatility has been the Swiss franc, widely seen as a safe haven asset in times of macroeconomic or geopolitical uncertainty. The Swiss currency has appreciated 10% against the U.S. dollar since the beginning of the year – but inside Switzerland's borders, rising demand for the franc is stirring up challenges for policymakers. The Swiss franc was last seen trading 0.2% higher against the greenback, with $1 buying around 0.82 Swiss francs. Switzerland's currency, which was trading flat earlier on Wednesday, rallied after ADP data showed hiring slowed to a two-year low in America's private sector last month.A strong franc puts deflationary pressure on Switzerland. As the currency appreciates, imports – which play a significant role in the country's economy – become cheaper. For some countries, this effect might be a welcome reprieve from sticky inflation. But while many developed markets, such as the U.S. and the U.K., are still working to bring inflation down to their 2% targets, Switzerland is facing the opposite problem: prices are falling too much. Swiss inflation turned negative in May, with the country's Consumer Price Index falling by 0.1% year-on-year. The price of imported goods contracted significantly, falling by 2.4% on an annual basis after staying flat in the previous month. Charlotte de Montpellier, senior France and Switzerland economist at ING, noted the role the currency rally was playing in the country's inflation picture. "The latest decline is largely driven by external factors," she said in a note on Tuesday. "A strong Swiss franc has significantly reduced the cost of imported goods ... Given that imports make up 23% of the CPI basket, this has a notable impact on overall inflation in Switzerland." The May data marked Switzerland's first return to deflation since the Covid-19 pandemic. It could push the Swiss National Bank toward utilizing two key policies previously implemented to address what De Montpellier labeled a "persistent headache" for the central bank. The SNB ended a seven-year stretch of negative interest rates in 2022 — an unpopular policy with savers and lenders, as they eliminate returns on savings deposits and squeeze banks' margins and profitability. At its most recent meeting in March, the central bank cut its key rate by 25 basis points to 0.25%. In the wake of this week's inflation data, the SNB is expected to "seek to combat the appreciation of the Swiss franc with the weapons at its disposal," De Montpellier said. ING expects the SNB to cut its key interest rate by 25 basis points at its next meeting later this month — and De Montpellier argued that further cuts will likely follow. "Based on current data, a return to negative interest rates before year-end appears increasingly probable," she said. "Our base case includes a second 25bp cut in September, bringing the policy rate to -0.25%. While the SNB would prefer to avoid deeper cuts, a 50bp reduction in June cannot be ruled out." While ING expects Swiss policymakers to stop cutting rates at -0.25%, De Montpellier said a further strengthening of the Swiss franc "could force [the SNB's] hand," leaving it with little choice but to take rates further into negative territory. Lily Fang, a professor of finance at business school INSEAD, told CNBC that current conditions were likely to push Switzerland back into a negative rates environment — a move that SNB Chair Martin Schlegel has stressed remains on the table. "The Swiss authorities are clearly concerned, because … it's a small, open economy that relies on international trade, and the U.S. in particular is their single most important trading partner beyond the EU bloc," Fang said in a phone call. "Switzerland has already gone ahead and lowered rates ahead of the EU. I think it is very likely to go to zero and even negative." Another tool the SNB has previously used to cool the Swiss franc is intervening in the foreign exchange market by selling the franc and purchasing foreign currencies. However, with U.S. President Donald Trump back in the White House, this strategy now comes with political challenges. Back in 2020, the U.S. Treasury, under the first Trump administration, labeled Switzerland a currency manipulator, accusing it of deliberately devaluing the Swiss franc against the greenback. The SNB denied those allegations at the time. Trump's full list of so-called reciprocal tariffs said "currency manipulation and trade barriers" had been factored into calculating the levies individual countries were imposing on the United States. The administration said it had calculated that Switzerland — which abolished all industrial tariffs last year — charged tariffs of 61% to the U.S., and it would therefore slap new tariffs of 31% onto Swiss goods. While ING's De Montpellier acknowledged that any possible FX intervention from the SNB risked "provoking the ire of the US administration," she argued it was likely the central bank would intervene in markets in the coming months. Alex King, a former FX trader and founder of personal finance platform Generation Money, agreed that any direct purchase of foreign currencies by the SNB was "unlikely to sit well with the US administration." "When Switzerland was labelled a currency manipulator in 2020 the threat of tariffs wasn't such a major factor, but it now has a dilemma on its hands," he told CNBC in an email. "If it was to intervene directly again in FX markets, it could get hit with higher US tariffs, and the negative impact of this could be worse than short term inflationary pressures." Last month, SNB's Schlegel said Swiss officials had held constructive talks with the U.S. on the central bank's FX interventions, in comments cited by Bloomberg. "We have never influenced the exchange rate to get us an advantage," he reportedly told an audience in the Swiss city of Lucerne. "I'm not sure that they will immediately go and use currency intervention, market intervention, because the U.S. tends to be … labeling countries 'manipulators,'" added INSEAD's Fang. "I don't think that they really want to be labeled as a manipulator again, [so] I think that they will use that probably as a last resort tool."
Yahoo
2 days ago
- Business
- Yahoo
Swiss inflation turns negative for first time since COVID pandemic
ZURICH (Reuters) -Swiss inflation turned negative in May, marking the first decline in consumer prices for more than four years and adding pressure on the Swiss National Bank to cut its interest rate steeply later this month. Consumer prices fell by 0.1% in May compared with a year earlier, according to data from the Federal Statistics Office on Tuesday, the lowest reading since March 2021 when the Swiss economy was hit by the COVID-19 crisis. An interest rate cut by the SNB at its next meeting on June 19 is seen as a certainty by the market, which gives a 69% probability the central bank will cut rates from 0.25% at present to 0%. Markets now give a 31% probability the SNB will cut its key interest rate to -0.25%, returning Switzerland to an era of negative interest rates which were in place from late 2014 to 2022. The Swiss National Bank declined to comment on Tuesday.
Hindustan Times
4 days ago
- Business
- Hindustan Times
Haryana asks NCRTC to ensure RRTS alignment has provision for future metro rail
The Haryana government has asked the National Capital Region Transport Corporation (NCRTC) to plan the alignment and signalling system of the Sarai Kale Khan-Gurugram-Behrore Regional Rapid Transit System (RRTS) corridor in such a way that if a metro rail is ever built on this corridor, it can use the same track infrastructure. The state pointed out that the RRTS project in Meerut also incorporates the local metro rail. The government also said it would provide 40 acres of land to set up an RRTS depot at either Pachgaon or Dharuhera in joint ownership with NCRTC. The state gave these directions during a meeting chaired by Haryana chief minister Naib Singh Saini on May 5 to discuss the revised detailed project reports of the SNB (Sarai Kale Khan-Nimrana-Behrore) RRTS project and the Delhi-Karnal RRTS project. 'NCRTC has been directed to plan the alignment and signalling systems of the corridor in such a manner that, should a metro system be proposed in the future along alignment, the same track infrastructure may be used as has been done in Meerut. This may necessitate the provision of appropriate station designs to accommodate future metro operations,' said a letter issued by the Haryana Mass Rapid Transport Corporation (HMRTC). The letter said that the Haryana government also asked NCRTC on May 5 to build the RRTS depot on the SNB corridor (Delhi-Gurugram-Behrore) at the terminal station instead of midway at Dharuhera, and to plan it along the lines of the depots in the Delhi-Meerut and Delhi-Karnal RRTS projects. 'As the corridor ultimately connects to SNB in Rajasthan, it is proposed that the depot be located in Rajasthan if this alignment is ultimately finalised. The government of Rajasthan is requested to provide approximately 70 hectares of land for this purpose, especially in light of the planned extension to Alwar/Sotanala or to Jaipur, which would predominantly benefit the state of Rajasthan and its people,' the letter said. The state government said that it will retain ownership of the 40 hectares of land in Dharuhera or Panchgaon and that it shall be responsible for commercial development on it. 'It was also decided that land required by NCRTC temporarily for the construction phase shall be handed over only after the tender for construction has been floated and before the award of tender,' it added. According to the revised detailed project report (DPR), construction for the 102km corridor from Sarai Kale Khan to SNB via Gurugram is expected to begin in August 2026, with completion targeted for November 2031. The project cost is pegged at ₹35,000 crore, to be jointly borne by the government of India and the state governments of Haryana and Rajasthan. Puneet Vats, spokesperson, NCRTC, when asked about the proposal to run a metro train on the RRTS corridor, said that metro trains are already being run in the Meerut RRTS system in areas where population is densely located. 'This is for the first time that metro trains are being run in an RRTS corridor as there is no requirement for a separate track. Metro stations are at short distances and in densely populated corridors it is feasible to operationalise metro trains on same RRTS track. In SNB and Karnal projects, the same can be done depending on feasibility,' he said.
Reuters
27-05-2025
- Business
- Reuters
Swiss inflation could go negative, SNB focused on medium term, Schlegel says
BASEL, Switzerland, May 27 (Reuters) - Swiss inflation could enter negative territory in the coming months, but this will not necessarily trigger a reaction by the Swiss National Bank, SNB Chairman Martin Schlegel said on Tuesday. The SNB will not be guided by inflation data for individual months, but instead look at maintaining price stability over the medium term, Schlegel told an event in Basel. "Even negative inflation figures cannot be ruled out in the coming months," he said. "The SNB does not necessarily have to react to this. Our focus is not on the current rate of inflation, but rather on price stability over the medium term." Swiss inflation eased to 0% in April, at the bottom end of the SNB's 0-2% target range, which it calls price stability. The figure, the lowest reading for four years, has fuelled market expectations the SNB will cut its benchmark rate from the current 0.25% at its next monetary policy meeting on June 19. Markets currently price in a 75% probability the SNB will cut the rate 25 basis points to zero. They give a 25% chance the central bank will go for a 50 basis point cut to minus 0.25%. By focusing on the medium term rather than short term peaks and troughs, the SNB could act with a "steady hand" in deciding monetary policy, the SNB chairman said. However, the bank would not hesitate to act if necessary, he said, with the SNB's policy rate its main tool. Currency market interventions could also be an important instrument, he added. Schlegel also said trade uncertainties are currently high due to the tariff policies pursued by the U.S. government.
