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MONEY

What impact will latest bank interest rate cut have on Swiss consumers?

In an unexpected move, the Swiss National Bank cut the interest rate by quarter point. How will this move impact consumers?

Published: 21 March 2024 12:27 CET
What impact will latest bank interest rate cut have on Swiss consumers?
If you fancy a new car, now may be a good time to buy it. Image by Toby Parsons from Pixabay

After raising its rate to 1.75 percent in 2022 and maintaining it at this level until now, the central bank (SNB) lowered it back to 1.50 percent on Thursday.

Contrary to the situation following Russia’s invasion of Ukraine, which affected global economy and Switzerland’s usually low inflation spiked to 3.4 percent, the new reduction of interest rate “has been made possible because the fight against inflation over the past two and a half years has been effective,” the bank said.

“For some months now, inflation has been back below 2 percent, and thus in the range the SNB equates with price stability.”

The bank’s forecasts indicate that “inflation is also likely to remain in this range over the next few years.”

What does this move mean for Switzerland’s consumers?

It could have both positive and (slightly) negative impact on household finances.

Much depends on whether you are planning to spend your money or save it.

If you are looking to buy big-ticket items that are usually purchased with credit — like homes or vehicles, for instance — then you are in luck.

That’s because when a central bank lowers its interest rates, loans become cheaper. So if you qualify for a loan, this is a good time to apply for one.

READ ALSO: Does having a good credit score matter in Switzerland? 

In terms of mortgages, they are likely to become cheaper as well when interest rates drop.

This, however, is only the case for new mortgages or ones that are due for renewal.

If you have a fixed-rate mortgage which is not up for renewal, then you will not be able to benefit from lower interest rates.

What about the money you have in the bank?

That’s where the news is not as good.

When the SNB raised its rates from 1.50 to 1.75 percent in December 2022, a number of Swiss banks offered a slightly higher yield on certain types of savings and investments. 

It is therefore logical that when the opposite happens — that is, when interest rates dwindle — so do returns on your assets.

At this point, however, it is not yet sure when this ‘drop’ in yields will happen, or by how much.

What, if any, impact will this move have on rents?

With the interest rate turnaround — and given a positive forecast on the inflation front — there will probably be no further hike in the reference interest rate in the immediate future.

And because the central bank lowered the key interest rate earlier than expected, there could perhaps be rent reductions later this year — but that remains to be seen.

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MONEY

Is it better for consumers in Switzerland if the Swiss franc is strong or weak?

Although Switzerland’s currency has weakened slightly against the euro in recent weeks, it remains strong. Is it good or bad news for consumers?

Published: 22 April 2024 15:42 CEST
Is it better for consumers in Switzerland if the Swiss franc is strong or weak?

Generally speaking, when a country’s currency is strong — as the franc is right now  against both the euro and dollar — consumers benefit on several fronts.

The main reason is that they will get more bang out of their francs, especially in these situations:

Imported goods

Since the exchange rates between the Swiss and foreign currencies are in franc’s favour, any merchandise that comes from abroad will, in principle, be cheaper.

If you go shopping in a supermarket and find, for instance, that the price of Swiss eggs hasn’t budged (and certainly not downward), you will have more luck with eggs imported from Germany or France.

However, while you may see some savings when purchasing foreign goods, this may not be a huge amount.

The reason, according to Moneyland consumer platform, is that “Swiss importers are not obligated to pass on extra profits earned on exchange rates to customers – and many of them don’t reduce prices at all.” 

Cross-border ‘shopping tourism’

Most products are cheaper — and sometimes by much — in other countries.

Even though inflation rates are higher abroad than they are in Switzerland, as is the Value-Added Tax, the franc’s power means it is still worth your while to buy your groceries in France, Italy, Germany, and other eurozone countries as well.

That, however, doesn’t mean that all products are cheaper abroad – it all depends on the specific goods and services in question.

For example, in general, electronics have lower price tags in Switzerland than in the EU countries.

READ ALSO: The one product that is cheaper in Switzerland 

Foreign vacations

With the franc stronger than the euro and US dollar, you can definitely benefit from travel abroad.

Whether just for a long weekend or full-scale holidays, you will be able to get more out of your money in many foreign countries, at least in terms of accommodations and food, than you would for the same amount of money in Switzerland.

Keep in mind, however, that the strong franc will not compensate for the cost of getting there and back, as the prices for airplane tickets, train travel, and petrol remain high.

All that is good, but is there a flipside as well?

The biggest ‘negative’ of the strong franc is that export-based companies suffer, because the goods they sell are too expensive abroad.

You may argue that this affects economy as a whole rather than individual consumers, and you’d be right — but only up to a point.

That’s because whatever happens in the economy at large will eventually trickle down to, and affect, the population, along with consumer confidence and spending habits.

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