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MARK AUSTIN THOMAS: Switzerland has raised its interest rates by 0.25 percent. On the face of it, not an earth-shattering event. But as Stephen Beard reports from London, this could spark dramatic moves in the currency markets.
STEPHEN BEARD: The Swiss Central Bank says it’s putting up interest rates to curb foreign speculators. They’ve been borrowing billions of Swiss francs at a relatively low interest rate and then converting them into a currency with a higher rate.
The effect of all this money flooding out of Switzerland has not been good for the Swiss economy. It’s depressed the franc and that’s raising inflationary pressures. Hence the action by the Central Bank.
Several trillion dollars worth of hot money are tied up in this speculative activity. If it takes fright, says analyst Neil MacKinnon, there will be market mayhem.
NEIL MACKINNON: It will end quite badly, I’m sure. It will end in tears. History tells us that when the bubble pops, it pops with a mighty bang. And reverberates globally across all financial markets.
He says the currency market has largely ignored the Swiss rate rise. That makes it likely they’ll be a much bigger increase and even more disruption in the months ahead.
In London, this is Stephen Beard for Marketplace.