Realised real rates – calculated as observed nominal rates minus the realised inflation rates – have also declined, and have been substantially lower in the 2000s than in the 1980s (chart 3). There are several potential explanations for this development. A first explanation is the “global savings glut” hypothesis, which states that the decline in real interest rates was the result of an increase in savings from emerging economies and oilproducing economies. It is argued that this increase was driven by, among other things, an accumulation of foreign exchange reserves, elevated oil prices and precautionary savings (chart 4).2 But the decline in real rates could also result from a decrease in growth prospects – itself caused, for instance, by a decline in the growth of productivity or population, or by demographic shifts, particularly a reduction in the working population relative to the nonworking population (charts 5 and 6).3 None of these possible explanations for the reduction in real interest rates has been fully confirmed, and therefore they do not constitute a sound basis for forecasting future interest rate developments. But the discussion highlights the fact that, in order to understand longerterm trends in real interest rates, we have to rely on low frequency changes in fundamental economic factors, while monetary policy does not play a primary role here. The cyclical downturn Let us now turn to more recent interest rate developments. As mentioned, since the financial crisis and the global economic slump that followed, we have seen a further fall in rates to very low levels.
In the analysis of potential future paths, we have to distinguish between policy rates and market rates. Market rates, in general, respond faster to changes in the economic situation and outlook than policy rates. The low inflation environment, subdued economic outlook and downside risks that prevail all warrant the continuation of a very accommodative monetary policy with low interest rates. Given the fragile state of the global economy, a premature increase in policy rates would carry the risk of choking off the recovery. In Switzerland, specifically, the subdued inflation outlook (chart 17), the highly valued currency and the fact that a recurrence of financial market tensions cannot be excluded warrant a continuation of the minimum exchange rate policy. In the current situation, the minimum exchange rate remains an essential instrument for preventing an undesirable tightening in monetary conditions should the upward pressure on the Swiss franc intensify again. Market rates are still determined by the current cyclical weakness of the global economy. Once the global economy gets back on a stronger and broader-based growth path and uncertainty wanes, rates should return to more normal levels. For Switzerland, this would mean that safe haven forces would become less relevant, removing some of the additional negative pressures on domestic interest rates. Conclusion In sum, given that we expect a slow, but continued improvement of the world economy, market rates are set to gradually recover to more normal levels over time.