NBS warns of FX risk arising from saving in swiss francs
21. July 2010. | 08:15
Source: EMGportal
Having already warned citizens not to borrow in Swiss francs unless their income is in the same currency, the NBS now stresses the need for citizens to be cautious when deciding to hold their savings in Swiss francs, motivated only by higher interest rates paid by some banks on savings in CHF.
Having already warned citizens not to borrow in Swiss francs unless their income is in the same currency, the NBS now stresses the need for citizens to be cautious when deciding to hold their savings in Swiss francs, motivated only by higher interest rates paid by some banks on savings in CHF.
In view of two-way volatility of exchange rates and the fact that over the medium-term it has been more pronounced for the Swiss franc than for the euro, the consequences of saving in Swiss francs can be rather serious – as strengthening of the Swiss franc tends to offset the expected gain from payment of lower interest rate on Swiss franc-linked loans, any future weakening of the franc may offset the expected gain from the currently higher interest paid on savings in Swiss francs.
If their payment obligations are in dinars, citizens may not be able to cover them from the same amount of savings in Swiss francs, just like instalment payment in dinars in respect of Swiss franc-linked loans is becoming a growing cause for concern.
The NBS warns once again that citizens who wish to borrow or save money should not be guided by the level of interest rates only, but should also bear in mind the FX risk arising from exchange rate volatility and unpredictable fluctuations of the Swiss franc against other world currencies.
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