A rate cut in Switzerland is possible as early as next week

Swiss inflation in February was 1,2 percent. and this is the lowest reading since the beginning of 2022. This increases the chance of being made by Swiss Central Bank (SNB) rate cuts on March 21. Lower rates will reduce the installments of Polish housing loans in Swiss francs. But Switzerland is also an interesting stock market with a capitalization of 170%. GDP.

The Swiss franc is being depreciated – why?

Switzerland is one of the most important European economies. However, for us it is of particular importance - many Poles check the Swiss currency exchange rate and interest rates every month because they still pay off mortgage loans taken out in CHF. At one time, Polish banks granted up to 800. of such loans, approximately 250 are currently active. of them. However, this portfolio is shrinking quickly. 5 years ago, these loans accounted for approximately 40%. the value of the mortgage loan portfolio in PLN, now it is only about 5%.

The recent strengthening of the zloty caused the franc exchange rate to drop to PLN 4,45, which is the lowest level in the last 12 months. Since the beginning, the franc has weakened against the zloty by about 5%. (about 25 cents). Similarly, the franc also weakened against the dollar by about 5%. This is quite an unusual situation. In times of increased geopolitical tension, the Swiss franc is perceived as a safe haven, and Switzerland has a huge 10 percent. surplus on the current account. It has 100% foreign exchange reserves. CBA and a traditionally interventionist central bank.

However, the upcoming prospect of interest rate cuts causes the value of the franc to decline. Especially after its visible strengthening last year. In February, inflation in Switzerland dropped to the lowest level in 2,5 years and amounted to 1,2%. The SNB's inflation target is a maximum of 2% and the basic rate is currently 1,75 pp, so the market estimates that the chance of a rate cut next week is about 40%. However, if the reduction did not take place in March, its probability would increase at each subsequent meeting. Such a reduction could translate into lower installments of Polish mortgage loans in Swiss francs within a few months. Each interest rate reduction of 0,25 pp means a lower loan installment by approximately PLN 20-30 for each PLN 100 borrowed. zloty. This would be an additional relief for borrowers apart from the above-mentioned weakening of the franc against the zloty.

Attractive Swiss stock market

When focusing on Swiss franc loans, we sometimes miss the fact that Switzerland is also a very interesting stock market. SMI Index (Swiss Market Index – XSMI.DE, EWL) is the seventh largest in the world. While the Swiss economy, with a GDP of USD 870 billion, is the 20th largest in the world. The market has a capitalization of 170%. Swiss GDP. The most important companies on the market are: food giant Nestle (NESN.ZU), a medical duo Novartis (NVS) i Roche (ROG.ZU), global bank UBS (UBSG.ZU) and a leader in the luxury products industry Richemont (CFR.ZU). The market is complemented by industrial companies ABB (ABBN.ZU), Sika (SIKA.ZU) and Holcim (HOLN.ZU). The healthcare industry and consumer staples make up more than half of the index and provide an above-average dividend yield. The rest are cyclical financial and industrial companies. Popular technology stocks make up less than 2% of the index.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.