China: macro myth-busting

• In this blog post we offer our thoughts on three strategically important questions regarding China’s macroeconomic and FX policy, for which there appears to be little consensus.
• A disaggregation of the decline in foreign exchange reserves and the balance of payments reveal some less sinister causes of reserve drawdowns and capital outflows
• Looking at the bigger picture, we believe China is stuck in an uncomfortable position within the “impossible trinity” and see further exchange rate and capital account liberalisation key factors in finding a new equilibrium.

Swiss Interest Rates: Lower for Longer ?

• Has the SNB reached the Zero Lower Bound? After last week’s ECB deposit rate cut, we assess the likelihood of further accommodative monetary policy in Switzerland.
• By applying a Taylor Rule approach to reveal the SNB’s own estimate of the neutral real interest rate, we estimate that there is indeed room for further interest rate cuts, especially as domestic Swiss real interest rates are still moderately elevated.