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The Swiss National Bank (SNB) remains cautious about negative interest rates, viewing them as a last resort to maintain price stability amid potential US sanctions on foreign exchange interventions. While the SNB's balance sheet has expanded significantly due to these interventions, recent reductions in foreign currency holdings have strengthened the Swiss franc. The central bank is closely monitoring inflation trends, with a key interest rate currently at 0.25%, and may consider further easing if deflation risks increase.
Zoltan Pozsar, a former Credit Suisse strategist, is now advising President Trump through his consulting firm, proposing innovative financial solutions like exchanging short-term US government bonds for hundred-year zero-coupon bonds. This strategy aims to enhance US financial flexibility while offering countries protection under the US nuclear umbrella. The approach could also address the debt ceiling issue, although it may have implications for countries holding US bonds, such as Switzerland.
Deutsche Bank warns that the Federal Reserve's potential withdrawal of its liquidity backstop could jeopardize the dollar's status as a reserve currency, marking the most significant risk since World War II. Concerns about the reliability of Fed swap lines may prompt global de-dollarization, especially among Western allies, as countries like China and Russia continue to reduce their reliance on the US financial system. The Fed's role as the world's lender of last resort is crucial, and any hesitation to provide liquidity could lead to increased demand for dollars and destabilize US asset markets.
Deutsche Bank warns that the Federal Reserve's potential withdrawal of its liquidity backstop could jeopardize the dollar's status as a reserve currency, marking a significant risk since World War II. Informal discussions among European officials suggest concerns over the reliability of Fed swap lines, which allow global institutions to borrow dollars during financial stress. Such fears could drive a shift towards de-dollarisation among America's Western allies, especially if the Trump administration influences the Fed's actions.
The Neuchâtel government remains left-leaning as socialists Frédéric Mairy and Florence Nater were re-elected in the first round of elections, achieving an absolute majority. The left's strategy to regain control of the State Council will depend on voter mobilization for the upcoming runoff, while the right also presents a joint list to defend its majority. Voter turnout was slightly lower than in the previous election.
Alfonso Tuor critiques proposed political regulations for UBS, arguing that increasing equity could harm profitability and lead to riskier management decisions. He emphasizes that the failure of Credit Suisse was due to poor management and regulatory oversight, not merely a lack of equity. Tuor also believes that while current rules are adequate, they were not enforced effectively, and he opposes salary caps for bank executives, asserting that financial dominance makes such measures impractical.
The Swiss National Bank has reduced its key interest rate by 25 basis points to 0.25%, continuing its cycle of cuts amid low inflation and rising risks. The inflation forecast for 2025 has been slightly adjusted to an average of 0.4%. The SNB is closely monitoring inflation trends and may consider further cuts if disinflation persists, with negative rates remaining a potential option.
The Swiss National Bank has revised its inflation forecast for 2025 to 0.4%, up from 0.3%, while maintaining a 0.8% forecast for 2026 and 2027. Economic growth is projected between 1% and 1.5% for 2025, with a solid fourth quarter in 2024. The SNB has cut the guide rate to 0.25% to address weak inflationary pressures and heightened risks, emphasizing the need for careful monitoring of global economic conditions.
Central banks are in focus today, with the Bank of England expected to maintain its rate at 4.50%, while the Swiss National Bank may cut its rate to 0.25%. The Riksbank is anticipated to hold steady at 2.25%, with a dovish outlook possible. In the US, the Fed's recent meeting resulted in unchanged rates, leading to lower rates and a weaker USD, while global equities rose, particularly in the US.
The Swiss National Bank purchased foreign currency worth 1.2 billion Swiss francs ($1.36 billion) in 2024, significantly decreasing its market interventions after successfully controlling inflation. This contrasts sharply with the 132.9 billion Swiss francs sold in 2023 to strengthen the franc against rising import prices.
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