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Sehr geehrte Damen und Herren
Increases in base rates are almost a daily occurrence right now – much to the detriment of equity markets. Just last week, the ECB confounded all hopes by raising interest rates again. The key deposit rate that banks receive from the central bank for parking surplus money climbed from 3.75% to 4.00%, the tenth hike within the space of little more than two years. The USA can look back on as many as eleven increases to date – and there may be more to come. Although the domestic currency watchdogs in Switzerland has been turning the interest rate screw a little less tightly, here to there have already been five upticks since June 2022, with interest rates rising from -0.75% to 1.75% now. |
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SNB AND FED IN FOCUS
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| The measures come on the back of a long period of galloping inflation. Although it has probably already passed its zenith and been on the downward slope in the last few months, inflation is still well above the level targeted by the monetary authorities. The ECB made it clear after its latest meeting that it would stick by its mandate to deliver price stability and would consequently keep interest rates high for as long as necessary to force inflation down. “An interest rate cut is not on the agenda,” said president Christine Lagarde. The ECB is not alone with this strategy, however: both the SNB and the Fed also want to maintain the purchasing power of money and are aiming for an inflation rate of no more than 2%. With interest rates in the eurozone having reached their highest level since the currency union launched in 1999, attention is now turning to the Fed and SNB. They will reach their monetary policy decisions following the summer break on 20 and 21 September (after we go to print). Before the meeting the Fed’s Funds Rate stood at 5.25% to 5.50%. |
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THE CLEVER WAY TO COLLECT INTEREST ON THE MONEY MARKET
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| “One man's meat is another man’s poison” is an old folk saying that can be applied to many situations in life, and also to the current interest rate landscape. While banks have demonstrably profited from high base rates in the last few months, savers have had to content themselves with much lower income. Interest rates on savings accounts, which are the most popular interest-bearing instrument in Switzerland, may have risen somewhat following the shift in monetary policy, but in many cases they are still below 1%. Investors do not have to be satisfied with these sometimes measly offerings, however: Leonteq has an array of much more profitable solutions. These include the ETP+ on the Leonteq CHF Overnight Return Index that has just come onto the market. The underlying is based on the closely watched reference interest rate for overnight transactions in Swiss francs, the Swiss Average Rate Overnight (SARON). |
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