| RAMZI CHAMAT | OAKS GROUP SA
In an economic context marked by a slowdown in inflation and an appreciation of the Swiss franc, the Swiss National Bank (SNB) recently made a crucial decision to lower its key interest rate to 1%. This measure, which has already drawn the attention of markets and real estate stakeholders, aims to boost economic activity and stabilize prices in the medium term. As Thomas Jordan’s departure from the SNB presidency approaches, this shift in monetary policy brings new opportunities for buyers, developers, and investors. Let’s explore the impact of this rate cut and the prospects it offers to the Swiss economy.
Faced with slowing inflation and an appreciating Swiss franc, the Swiss National Bank (SNB) recently made a significant decision to lower its key interest rate by 25 basis points, setting it at 1%. This monetary shift reflects the SNB's intent to adapt to the current economic landscape and to anticipate future challenges. This announcement, which coincides with the departure of its president Thomas Jordan at the end of September, marks a new era in Swiss monetary policy.
The slowdown in inflation in Switzerland was the main driver behind this decision. In August, inflation fell to 1.1%, a figure lower than most economists had anticipated. This downward trend is partly due to the appreciation of the Swiss franc, which has helped contain the rise in prices for imported goods and services. The franc has strengthened significantly in recent months, reaching almost parity with the euro at the end of May and currently sitting around 0.9485 against the euro. This appreciation has notably impacted the economy, weighing on exports and affecting the competitiveness of Swiss companies.
In response to these developments, the SNB decided to lower its key interest rate to make credit more affordable for households and businesses. This rate cut follows a period of increases that began in 2022 to combat rising prices. The SNB had already started easing its monetary policy in March 2024, well ahead of the European Central Bank (ECB) and the Federal Reserve (Fed), demonstrating its proactive approach to supporting the Swiss economy.
For property buyers, this decision is excellent news. The reduction in key interest rates usually translates into lower mortgage rates, making homeownership more affordable. Potential buyers can now consider loans with more favorable terms, simplifying the process of purchasing real estate. Moreover, historically low-interest rates ease the burden of monthly payments for homeowners, providing valuable financial flexibility in an uncertain economic climate.
This rate cut also benefits investors. By lowering the cost of capital, the SNB encourages real estate investment, thereby stimulating the entire sector. Real estate developers can now access more attractive financing to launch new projects, whether in the residential, commercial, or tertiary sectors. The revival of real estate activity contributes to job creation and the country's economic growth.
The SNB's reduction of the key interest rate has repercussions beyond the real estate market. Lower borrowing costs encourage businesses to invest, expand their activities, and hire more employees. The Swiss gross domestic product (GDP) grew by 0.5% in the second quarter of 2024 compared to the previous quarter, although this growth remains below the average. The economic situation in Europe, the primary export market for Swiss companies, remains uncertain, affecting external demand and the performance of the export sector.
However, the SNB's more accommodative monetary policy could help support economic growth in Switzerland by mitigating the effects of the weak European economy. A low-interest-rate environment also boosts household consumption, as people feel more confident to spend and invest in long-term projects.
The SNB has also indicated that additional rate cuts could be considered in the coming quarters to ensure price stability in the medium term. This statement shows that the institution remains vigilant to economic developments and is ready to adjust its policy to address future challenges. The ongoing appreciation of the franc, which weakens exports and could impact growth, indeed justifies a flexible and responsive monetary policy.
For developers and investors, this prospect is a positive signal. It suggests that the SNB will continue to support the economy and maintain favorable financing conditions. Financial markets, sensitive to interest rate fluctuations, could thus benefit from a period of stability and predictability.
This change in monetary policy coincides with the departure of Thomas Jordan, president of the SNB, at the end of September. His successor, Martin Schlegel, will take over the management of monetary policy in October. Under Thomas Jordan's leadership, the SNB demonstrated great caution and a constant focus on economic stability. His departure marks the end of an era, but the institution continues to operate with clear objectives: to ensure price stability and support the Swiss economy.
The SNB's decision to lower its key interest rate to 1% is a major step that will influence the entire economy, from real estate buyers to developers and investors. By making credit more accessible, the SNB promotes investment, stimulates the real estate market, and supports economic growth. For buyers, this is an opportunity to undertake real estate projects under advantageous conditions. For developers, it is the chance to launch new initiatives in a more dynamic economic climate.
While the future remains marked by some uncertainties, particularly regarding the European economy and market tensions, the SNB's accommodative monetary policy opens up new prospects. It sends a clear message: the Swiss economy is ready to adapt, strengthen, and thrive in this evolving context.
Ramzi Chamat
OAKS GROUP SA
