Strong franc, negative interest rates expected to stay

Negative interest rates are expected for a third year in a row Keystone

The Swiss economy will continue to be plagued by an over-valued franc and negative interest rates for the whole of next year, according predictions released by Credit Suisse bank economists.

The silver lining to this forecast is that Swiss companies will continue to adapt, easing pressure on the Swiss National Bank (SNB) to intervene on the foreign exchange markets, Credit Suisse said on Wednesday. The bank expects the Swiss economy to grow 1.5% next year.

Switzerland’s central bank set interest rates at -0.75% in January 2015 as it abandoned its defence of the Swiss franc against the plummeting euro. The move to discourage foreign investors from buying Swiss francs has hurt Swiss pension schemes and artificially stimulated the property market.

The SNB will make its next monetary policy statement on Thursday. A poll of 34 analysts by Reuters said they expect rates to remain as they are.

Credit Suisse expects the SNB to stick with the current interest rates for the entirety of next year. But researchers also predict that the central bank “will intervene less actively in the foreign exchange market…and could tolerate a stronger Swiss franc” as Swiss exporters learn to cope with the pain.

The forecast is largely in line with other economists who predict no change to Swiss interest rates until late 2017 at the earliest. Swiss monetary policy is closely linked to the actions of the European Central Bank (ECB), which is expected to ease its expansionary startegy next year.

Credit Suisse expects inflation to return to Switzerland next year, albeit at the low rate of 0.5%.