On monetary policy in the new year

Hans Meyer, Chairman of the Governing Board

University of St Gallen, St. Gallen, 20 January 2000, 20.01.2000

The Chairman of the Governing Board of the Swiss National Bank, Hans Meyer, looks back and comments on the economic situation in the OECD area and in Switzerland. He considers the launch of the euro to have been a positive development in principle even if the new currency has depreciated by approximately 15% vis-à-vis the US dollar. The speech is dedicated primarily to the new monetary policy concept of the Swiss National Bank.

This concept consists of three elements: definition of price stability, use of a broadly-based medium-term inflation forecast as chief indicator, target range for the three-month rate in the Swiss franc money market for the implementation. With the new concept the National Bank in particular also increases the transparency of its monetary policy.

In defining price stability, it must be borne in mind that inflation cannot be measured with complete accuracy. Moreover, it is practically impossible for the National Bank to steer inflation precisely, which is why it does not pursue an actual inflation target. The inflation forecast over a period of three years reflects the National Bank's forward-looking stance. The target range for implementing monetary policy represents a deviation from quantitative standards in the money market. It became increasingly difficult to set such standards in view of the strong fluctuations in the banks' demand for sight deposits. In fixing a target range, the National Bank does not aim at pursuing an active interest rate policy and will continue to permit interest rate fluctuations to a certain extent.

The adjustment of the monetary policy concept takes account of the changes in the financial markets. In this way, the National Bank can also fulfil its mandate in future. The best concept, however, is only as good as its implementation. Very often, the willingness to take consistent, and sometimes unpopular, decisions is equally important. Support for monetary policy decisions from other political quarters is essential. Only if there is continued broad support of the political will to ensure stable monetary conditions in Switzerland, can the National Bank fulfil its mandate in the long term.