Switzerland: Selected Issues

International Monetary Fund

No 2024/180, IMF Staff Country Reports from International Monetary Fund

Abstract: This Selected Issue Paper studies the relationship between monetary policy, financial conditions, and real activity during the current monetary policy-tightening episode in Switzerland. After a review of various channels through which monetary policy changes affect financial conditions, the paper shows that the transmission of policy rates to market rates has been swift and that the exchange rate is an important channel. The response of real activity to tightening financial conditions has remained broadly in line with past tightening episodes. The interest rate increase has influenced cash flows for households due to higher mortgage interest expenses. Higher interest rates also lead to higher rental cost for non-homeowners. Policy rate adjustments affect the average interest rates of mortgages and thus the mortgage reference interest rate, which is a factor for rent adjustments by Swiss regulation. Monetary tightening has contributed to a slowdown of private credit and house-price growth. Growth of mortgage loans, which represent 85 percent of bank lending, moderated to 2.4 percent in 2023 from 3.5 percent in 2022.

Keywords: mortgage price; market valuation; real estate price development; monetary policy transmission; B. Beveridge Curve dynamics; Real estate prices; Mortgages; Labor markets; Inflation; Central bank policy rate; Global; Europe (search for similar items in EconPapers)
Pages: 43
Date: 2024-06-24
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