What is the key interest rate / leitzins and what is its influence on other interest rates?
The "Leitzins," also known as the "key interest rate" or "benchmark interest rate," is the interest rate set by the Swiss National Bank (SNB) or any other central bank. It influences the cost of borrowing money in any given economy.
When a central bank adjusts the key interest rate, it essentially changes the cost for banks to borrow money from it. A lower key interest rate reduces the cost of borrowing, encouraging banks to lend more to businesses and consumers, boosting investments and leading to economic growth. In contrast, a higher key interest rate makes borrowing more expensive, slowing down spending and helping to control inflation and stabilise the economy.
Here are the ways in which the key interest rate influences the economy:
- Consumer Spending: Lower interest rates make loans and mortgages cheaper, encouraging consumers to buy consumer goods and homes. This increased spending supports businesses and can lead to job creation.
- Investment by Businesses: With lower borrowing costs, businesses are more to invest in expansion or new projects, leading to economic growth and potentially more employment opportunities.
- Currency Value: The key interest rate also affects the value of a country's currency.
- Inflation Control: Central banks often raise interest rates to combat high inflation, as more expensive borrowing can reduce spending and pressure on prices, stabilising the currency.
In the context of leasing, the key interest rate has an influence on the leasing interest rates, e.g. the cost of borrowing money from the bank or company offering the lease. For example, during the economic difficulties of 2023, the key interest rates were raised and as a result, most leasing companies raised their leasing interest rates.