Swiss Central Bank Threatens More Action to Ward off Deflation; Swiss Real Estate Overheating; Don't Worry, It's Not a Bubble (It Just Looks Like One)

The Swiss National Banks "expects" the Franc to depreciate, and if it doesn't it will flood the world with more Francs, if necessary, to stave off deflation.

Bloomberg reports SNB Is Ready to Act on Franc If Gains Risk Deflation, Hildebrand Tells NZZ
Swiss central bank President Philipp Hildebrand said policy makers remain ready to act in case the franc’s strength increases the risk of deflation and threatens the country’s economy.

The Swiss National Bank expects the franc “to depreciate further,” Hildebrand told NZZ am Sonntag newspaper in an interview conducted Nov. 2 and published today. “Should that not be the case, it could lead to deflationary developments and weigh heavily on the economy. We are ready to take further measures in case economic prospects and a deflationary development should require it.”

Asked whether the SNB would increase its cap on the franc versus the euro, the president said that the central bank “monitors the data and would take further measures if needed.”

The SNB’s past efforts to stem the franc’s advance, including 15 months of currency sales, contributed to the central bank’s record $21 billion loss in 2010, prompting calls by lawmakers for Hildebrand to resign. The SNB more than quadrupled its currency holdings over 15 months beginning in March 2009, before suspending interventions in June last year.

The central bank is monitoring developments in the Swiss real-estate market “with a certain concern,” Hildebrand told NZZ am Sonntag. Still, it’s possible that with the economy cooling and unemployment rising the property market may calm, he said.
Check out that last comment by Hildebrand. He is worried about a property bubble and wants to prevent deflation by printing Francs, which (until the Swiss property bubble bursts), will further inflate its property bubble, placing more deflationary pressures on Switzerland when it pops.

Don't Worry, It's Not a Bubble (It Just Looks Like One)

UBS says Swiss Property Market Booming In 3Q, But Not In Bubble
Switzerland's property market continued to boom in the third quarter, though the chance of a downward price correction remains low, according to an index measuring risk in the market.

"Strikingly, loan applications for real estate purchased for leasing increased further despite being at a high level already, and neither is any trend reversal in sight for Swiss household mortgage debt," UBS said. Still, "the relatively small increase in nominal house prices has had a cooling effect on the market."

The Zurich, Geneva and Lausanne metropolitan regions remain Switzerland's most risky regions on account of to their economic importance, but Zug, Vevey and the tourist region of Davos have now been added to the list, it said.

The Swiss central bank warned this year on the dangers of the residential real-estate market overheating, and has said it and the Swiss financial market regulator Finma are watching developments closely.

Increases in Swiss house prices, especially in some lakeside locations in Zurich and Geneva, have been driven largely by robust economic growth, historically low mortgage rates, and the influx of high-earning immigrants.
Mad Mad Recap

UBS says Switzerland real estate is not a bubble even though it is acting like one and even though the Swiss central bank and Swiss regulators are worried about it.

Moreover, the Swiss central bank is ready to stave off deflation yet is counting on the "economy cooling" to calm the property market, while attempting to prevent the economy from cooling by flooding the world with Francs.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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