Negative SNB Rates May Lessen Swiss Mortgage Dilemma: IMF

The introduction of negative interest rates on banks’ excess deposits could help the Swiss National Bank cool the country’s real-estate market, according to the International Monetary Fund.

“Negative interest rates may help address the dilemma the SNB faces: low interest rates are necessary to defend the floor but fuel the housing and mortgage markets,” the IMF said in a report today, following its annual Article IV consultation.

The central bank has held its benchmark interest rate at zero since August 2011 and in September of that year capped the franc at 1.20 per euro to shield the economy from the crisis in the neighboring euro region.

Should the franc face another bout of steep appreciation pressure, the SNB could implement a charge on the excess deposits commercial banks hold with the central bank, the IMF said in March.

Banks might pass the increased cost of funding to clients in the form of higher mortgage rates and thereby limit credit growth, according to the report. Lenders might also pass on the higher cost to depositors, which could impede financial intermediation, it said.

Still, given “very low” activity on the Swiss interbank market thanks to excess liquidity at lenders, the drawbacks of negative rates in Switzerland may be less severe than in other countries, the IMF said.

“The impact of negative interest rates on mortgage rates depends on the pass-through,” the IMF said.

Switzerland is in the midst of its strongest housing boom in two decades, fueled in part by the SNB’s loose monetary policy that has made taking on debt inexpensive. In a bid to thwart risky lending, the government in February ordered banks to hold additional capital as a buffer. The measure, implemented at the behest of the SNB, takes effect from Sept. 30.

SNB Board Member Fritz Zurbruegg said in an interview last week that it was still too early to judge the buffer’s effect.

To contact the reporter on this story: Catherine Bosley in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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