How to improve cash forecasting and manage uncertainty

Sara: We're living a period of great uncertainty and change. With that in mind how can treasurers improve cash forecasting and structures to protect cash as an asset?

Christoph Hofstetter: The intervals of reporting must be increased and you have to look at it in more detail. With every crisis, uncertainty increases, this means you need to be taking a closer look and to carry out the daily routine in a more consistent way so that you don’t have too long a period when you aren’t aware of what is happening.

This allows you to handle any changes that may arise and to protect cash as an asset. You also shouldn’t do anything too long, so long-term investments should be something you do more in periods where there is a very low level of uncertainty and there aren’t any big surprises.

"With every crisis, uncertainty increases, this means you need to be taking

 a closer look and to carry out the daily routine in a more consistent way."

If the economic framework is changing to a more unstable economic stage then it would be necessary to increase the intervals of reporting as well as to have shorter investment periods. This might be shorter term bonds, perhaps 6-12 months, or even term deposits.

Sara: What do you think are the key pieces of advice for treasurers to plan and manage their treasury risks?

Christoph: With the situation that we currently have, this is the red line that we have to look at on a very short term basis: for the liquidity to be ready for any unexpected events. This goes hand-in-hand with having short term investment periods and for investors to change their current investment universe from longer investment products to correspondingly short-term investment products.

Also, if you normally have X amount, it would be good to increase this amount to be ready for any uncertainty. This is what the treasurer must do in order to be a good treasurer.

Sara: There seems to be a lot of changes to central bank policy when they are trying to reduce interest rate loss etc. Is there a sense in which this central bank policy, and the possibility of interest rate rises, are playing into how you as a treasurer have to think about liquidity and cashflow?

Christoph: Yes, at least indirectly if not directly. Low interest rates, from a funding perspective, are always very nice to see. If you are thinking about funding and there are low interest rates, this would be something that would play to your advantage so that you could increase to a higher investment amount without having an issue with funding thoughts because it is cheap to fund.

I believe that in the future we will see, in the short term, high inflation, because there are some investments that you might do two or three times because you weren’t able to do it in the past year but in general for the first three to six months there will be some effect which increases the demand for products and also will be the reason for higher inflation.

"I believe that we might only see interest rates begin to

rise in 2025."

In general, after six to nine months, we will be in a process of stepping back to more normal levels.

I have heard from various economists that we won’t see interest rates increasing before the second half of 2023. This means that we will stay at these levels and I am not even sure that we will see this increase in 2023.

I know there are questions around what the central bank is doing and whether it is now time for tapering, but I feel that the US Federal Reserve and European Central Bank have operated differently in the past, and I believe that starting this process too early might cause too much risk of the economic revival or recovery process.

Therefore, I believe that we might only see interest rates begin to rise in 2025.