The strong Swiss franc, an old story? Negative rates, they should be abandoned soon.
The rise of the Swiss franc could be over and there are prediction that negative rates, they should be abandoned soon and Swiss franc will weaken to 1.25 to the euro.
After climbing the 1.20 FCH against 1 Euro, the Swiss franc could remain stable in the coming months. It could even fall further. The Swiss National Bank (B.N.S.) was not wrong in repeating that the franc was overvalued. It believes that its value is at fair value – around an exchange rate of 1.20.
A return to the floor rate that had been introduced by the B.N.S., after the debacle of the single currency during the European debt crisis, in 2011, brought the Swiss franc and Euro at parity.
This floor rate was dropped in January 2015. The period was difficult for Swiss exporters, who had to deal with a stronger Swiss franc.
In the near future, could these companies consider that the Swiss franc returns to similar rates in the late 2000s – above 1.50? For the next few months, this seems unlikely.
The inflation and current account (ie trade balance and capital) differential with the European Union will remain in favor of the Swiss franc.
Another year of negative rates in Switzerland and Europe:
The growth of the European Union is around 2.5% per year, while its potential is between 1 and 1.5%. This growth is encouraging; 2% of economic growth generates an increase in corporate profits on average of 10%. The good health of European companies benefits Switzerland.
Could a rise in interest rates stop this economic growth?
The growth rate in Germany is 4%, while its long-term interest rates are only 0.6%. We therefore have room for rate normalization before it impacts companies.
The European Central Bank (ECB) is expected to stop its massive asset purchases between September 2018 and December 2018, then increase its rates in March 2019 or June 2019. The B.N.S. will follow the movement. As a result, there are still twelve months of negative rates in Switzerland and Europe. Thereafter, the rates will oscillate between 0 and 1%.