In a previous publication, A Clockwork Trade, 27 May 2015 I had pointed out that the Swiss export economy was threatened by its reputation as a financial safe haven. In particular, capital inflows into Swiss assets caused the Swiss Franc to become, in the words of Swiss National Bank Chairperson Thomas Jordan, “significantly overvalued”. By the beginning of June, the overnight repo rate at that time was -0.74%, the 3 month Franc LIBOR was at -0.79 and the yield on the 10 year bond, -0.03%.
Also at that time, the Bank of England was on the disinflation borderline, recording a recent ‘inflation rate’ at 0.0% in spite of efforts to attain a target inflation rate of 2.0%. The current bank rate was 0.5% and the BOE was still engaged with its bond purchasing program totaling £375 billion at the end of May. Some weeks before the BOE reduced its growth forecast to 2.5% for 2015 and to 2.6% for 2016 down from a 2.9% forecast for the next two years . The SNB had forecast CPI to decline to 1.1% in 2015 after the largest reported decline, 4.6%, in over a decade. The deflation concerns were far more serious in Switzerland than in the UK.
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