The Swiss inflation rate in February was 1.2 percent, the lowest reading since the start of 2022. This increases the chance of the Swiss National Bank (SNB) lowering rates as early as March 21. Lower rates will decrease the installments of Polish housing loans in francs. But Switzerland is also an interesting stock market with a capitalization of 170 percent of GDP.
Switzerland is one of the more significant European economies. It has particular importance for us as many Poles check the Swiss currency exchange rate and interest rate levels every month, as they are still repaying mortgage loans taken out in CHF. At one time, Polish banks granted up to 800,000 such loans, with about 250,000 of them still active. However, this portfolio is quickly shrinking. Five years ago, these loans accounted for about 40 percent of the value of the mortgage loan portfolio in zlotys, now it is only about 5 percent.
The recent strengthening of the zloty caused the franc exchange rate to fall to the 4.45 zlotys level, which is the lowest level in the last 12 months. Since the beginning, the franc has weakened against the zloty by about 5 percent (about 25 cents). Similarly, by about 5 percent, the franc has also weakened against the dollar. This is a rather unusual situation. The Swiss franc is seen as a safe haven during periods of increased geopolitical tension, and Switzerland has a massive 10 percent surplus in its current account. It has currency reserves amounting to 100 percent of GDP and a traditionally interventionist central bank.
However, the prospect of interest rate cuts is leading to a decrease in the value of the franc. Especially after its noticeable strengthening last year. In February, inflation in Switzerland fell to the lowest in 2.5 years and reached 1.2 percent. The SNB’s inflation target is a maximum of 2 percent, and the base rate is currently 1.75 p.p., so the market estimates that the chance of a rate cut next week is about 40 percent. However, if the cut does not occur in March, the probability of a cut at each subsequent meeting will be higher. Such a cut could translate into a reduction in installments of Polish housing loans in francs over several months. Every 0.25 p.p. reduction in interest rates means a lower loan installment by about 20-30 zlotys for every borrowed 100,000 zlotys. This would be additional relief for borrowers, apart from the already mentioned weakening of the franc against the zloty.
Paweł Majtkowski, financial markets analyst at eToro
