Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Global interest rates set to stay low - SNB's Zurbruegg

Published 08/31/2021, 12:19 PM
Updated 08/31/2021, 12:20 PM
© Reuters. FILE PHOTO: Swiss National Bank (SNB) Vice-Chairman Fritz Zurbruegg attends a news conference in Bern, Switzerland June 18, 2020. REUTERS/Arnd Wiegmann

© Reuters. FILE PHOTO: Swiss National Bank (SNB) Vice-Chairman Fritz Zurbruegg attends a news conference in Bern, Switzerland June 18, 2020. REUTERS/Arnd Wiegmann

ZURICH (Reuters) - Global interest rates are likely to stay low, fuelling an already red-hot Swiss property market that poses risks to financial stability, Swiss National Bank (SNB) Vice Chairman Fritz Zurbruegg said on Tuesday.

"It is to be expected that the global low interest rate environment will remain unchanged for some time to come," he said in prepared remarks on mortgage and property markets at the University of Lucerne.

An ageing population and a decline in productivity growth are among the structural factors behind the trend, while central banks in advanced economies are pursuing expansionary policy.

"Such policy continues to be necessary in order to counteract the impact of the coronavirus crisis. It is therefore to be expected that interest rates will remain low for some time yet, which means that incentives for increased risk-taking will remain in place," he added.

The SNB itself has run an ultra-loose policy for years to rein in the safe-haven Swiss franc, which has made investment in Swiss property attractive. Strong growth in mortgage and real estate markets means risks to financial stability have increased, Zurbruegg said.

"We consider the vulnerabilities on the mortgage and real

estate markets to be at a high level at present," Zurbruegg said, citing in particular the residential property segment and an unusually high 150% ratio of mortgage debt to GDP.

Bank lending accounts for 95% of Swiss mortgage loans, prompting the SNB to keep a close eye on the financial sector.

Between 20% and 30% of newly granted mortgage loans for residential investment property would be deemed unaffordable if the mortgage interest were to rise to 3%, going up to around 40% should the interest rate climb to 4%, he noted.

"We are currently seeing clear signs of unsustainable mortgage lending on the one hand and heightened risks of a price correction on the other," he said.

The banking system could face considerable losses should

© Reuters. FILE PHOTO: Swiss National Bank (SNB) Vice-Chairman Fritz Zurbruegg attends a news conference in Bern, Switzerland June 18, 2020. REUTERS/Arnd Wiegmann

interest rates rise abruptly, he said, although capital buffers meant most banks would be capable of absorbing credit losses.

Data released since the SNB's financial stability report in June show price momentum continues "unabated", he said, adding the SNB regularly reassesses the need to reactivate countercyclical capital buffer rules it suspended during the pandemic.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.