You are probably wondering why a Swiss interest rate decision deserves your morning coffee. Most of us do not bank in francs, and very few of us have a chalet to worry about. But Switzerland is where the world runs when it gets frightened, and this week its central bank quietly said something useful about the price of feeling safe.
Zero, again
On Thursday 24 September, the Swiss National Bank kept its main interest rate at zero. Not low. Zero. While the Federal Reserve has just raised rates, the Bank of England sits at 3.75 per cent, and even Japan has been lifting its rates, Switzerland is holding steady at nothing.
The reason is in the inflation numbers. Swiss prices rose by just 0.8 per cent in the year to August, up from 0.6 per cent in May, mainly because of energy. The bank’s own statement expects inflation of 0.7 per cent this year and 0.8 per cent in each of the next two. Many countries would love that problem.
The franc finally relaxed
The most interesting line was about the currency. For much of this year, investors rushing for safety bought Swiss francs, pushing the currency up and making Swiss exports more expensive abroad. The bank had repeatedly said it was ready to step into the currency market to stop the franc rising too far.
This week the tone changed. The bank described the franc’s recent weakening as a supportive, positive effect on the economy. It still says it is willing to act in currency markets as necessary, but, as Bloomberg reported, the threat of intervention has clearly eased. Put simply, the bank looked relieved that fewer people were piling into its money.
The price of safety
Here is the part that applies to all of us. Safety has a price, and the price is return. Swiss savers live with a central bank rate of zero. The franc is prized precisely because it doesn’t do anything exciting, and in a year of wars, trade truces and rate rises elsewhere, that dullness is its selling point.
I compared how central banks in other countries reach into our portfolios in Three Central Banks, One Lesson for Your Money. Switzerland adds a different lesson. Sometimes the most important signal is not a rate change, but a change in who is buying the currency and why.
How I read it
I keep a part of what I own in things that are deliberately unexciting. They are not there to make me rich. They are there so I do not have to sell something good at a bad moment. The Swiss decision reminds me that this calm comes at a cost. Money parked in the safest places tends to earn the least, and when inflation runs higher than the return, safety quietly shrinks.
The bank itself named the situation in the Middle East as the biggest risk to its outlook, because a further jump in energy prices could push inflation up and slow growth at the same time. If that happens, I would expect frightened money to head back to the franc, and the currency story could reverse just as quickly as it relaxed.
The takeaway
A zero rate from a small, calm country is not headline news. But it is a neat reminder that every choice about money is a choice between comfort and growth. I want some of both. The trick, as ever, is deciding how much of each I can live with, and then having the patience to leave it alone.
The Jacqueline Brand — knowledge builds confidence, and confidence builds wealth. This is editorial commentary for information and education only. It is not financial, investment or professional advice, and nothing here is a recommendation to buy or sell any investment. The Jacqueline Brand is not authorised or regulated by the Financial Conduct Authority. The value of investments can fall as well as rise, and past performance is not a guide to future returns. Figures were correct at the time of publication. Always do your own research and consider speaking to a regulated adviser. Where cryptoassets are discussed, they are high risk and largely unregulated in the UK, and you could lose all the money you invest. The Collection
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