Switzerland ETFs: Strengthening Franc, Slowing Economy | ETF Trends

Volatility and debt worries in Europe have left Switzerland as one bastion of stability in a tumultuous region. Both the Switzerland country-specific and currency related exchange traded funds have been attracting save-haven flows.

Analysts predict the Swiss National Bank won’t tighten its loose monetary policy until September as the strengthening Swiss franc deters any outright reason to raise rates, reports Neil MacLucas for The Wall Street Journal. Switzerland’s largest banks, UBS AG and Credit Suisse Group, do not expect any changes to the “Libor” interbank offered rate of 0.25%. [Why The Swiss Franc ETF is on Fire.]

“The SNB is in a risk-management mode,” commented Alessandro Bee, economist at Bank Sarasin & Cie, “and while the economy is doing well and would warrant rates above 1%, it’s focusing on the threat of a strong franc ‘killing’ the business cycle.”

Raising rates would only further strengthen the Swiss franc, which would threaten the very export-focused Swiss economy. The low rates have helped push the economy along, but inflation rates remain relatively subdued. Moody’s Analytics economist Melanie Bowler opines that rates may even hold steady until the end of the year, with the Swiss core inflation at around zero in May and a strong franc keeping import prices down.

“The Swiss National Bank doesn’t need to act in June,” stated VP Bank chief economist Joerg Zeuner. “The lessening dynamism of the recovery will also mean that there is no danger of inflation in the second half of the year.”

The SNB projects growth slowing to 2% for the year due to the appreciating franc, with an expected average inflation of 0.8% for 2011 but rising to 1.1% in 2012 and 2% in 2013.