Petra Tschudin, member of the SNB’s governing board, told the Neue Zürcher Zeitung (NZZ) newspaper that even in a low interest rate environment, negative interest rates can be used to control the interest rate differential. This ensures the Swiss franc does not appreciate excessively against other currencies.
“We pursue a monetary policy in the interests of the country as a whole,” she replied to the question of whether the SNB was pursuing an export promotion policy with its focus on the exchange rate. It is not about supporting one economic sector in particular, said Tschudin.
The exchange rate in Switzerland has a major influence on price stability. Ensuring this and keeping inflation between zero and 2% is the SNB’s goal, Tschudin said. “If inflation regularly falls below zero, wages would have to be cut on a regular basis.”
Central banks can combat deflation by cutting interest rates, but with a current key interest rate of 0.5%, the SNB no longer has much room for manoeuvre.
Negative if necessary
SNB chair Martin Schlegel did not rule out negative interest rates at the end of January. “The SNB doesn’t like negative interest rates either,” Schlegel told Bloomberg TV at the World Economic Forum in Davos. But if the step becomes necessary, the SNB will take it.
Annual inflation in Switzerland fell further in January. However, the decline was limited, which is good news for the SNB. Inflation in January was still 0.4% after 0.6% in December, the Federal Statistical Office reported on Thursday.
Opinions differ on the impact of the latest inflation data on the SNB’s next interest rate decision. Some economists expect it to remain at the current level. For others, the question is when the SNB will lower the key interest rate to zero – and what the monetary policy course will look like afterwards.
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