Risks From Negative Rates Are Rising in Switzerland, OECD Says

  • Paris-based body publishes semi-annual Economic Outlook
  • SNB’s negative deposit rate designed to curb strength of franc

The likelihood of Switzerland feeling the ill-effects of negative rates is increasing, according to the Organization for Economic Cooperation and Development.

“The risks posed by negative interest rates have not materialized so far, although they are rising, notably for the financial sector,” the Paris-based body said in a report published on Monday. “The authorities should stand ready to reinforce macroprudential measures, as mortgage rates are very low and debt relatively high.”

In a bid to halt the franc’s appreciation and counter falling consumer prices, the Swiss National Bank cut its deposit rate to a record-low of minus 0.75 percent in early 2015, supplementing it with foreign exchange interventions.

Banks in Switzerland have said the SNB’s negative interest rates make it harder to earn money. To offset the expense of having to pay the central bank for the money they park there, lenders have increased mortgage costs.

Swiss banks focused on property lending are taking more risks to compensate for the impact of record-low interest rates, increasing the threat of a real-estate bubble, SNB Vice President Fritz Zurbruegg said last week, citing an “imprudent attitude.”

In its report, the OECD did not elaborate on why the risks were building.

The SNB holds roughly 630 billion francs ($625 billion) in foreign currency reserves, much of it accrued due to its interventions to stem the franc’s rise.

“Monetary policy is appropriately very accommodative, as a sustainable return to positive inflation is still not ensured and the exchange rate remains under upward pressure,” the OECD said. “However, the possibility of additional central bank stimulus is limited.”

    Before it's here, it's on the Bloomberg Terminal.