Implementing monetary policy in changing times
Dewet Moser, Alternate Member of the Governing Board
Money Market Event, Zurich, 22.03.2012
To fulfil its mandate in a difficult environment, the Swiss National Bank (SNB) has adjusted the implementation of monetary policy several times since the onset of the financial crisis. As a result of the SNB's purchases of foreign currency from March 2009 to June 2010, the banking system was flooded with excess liquidity. From mid-2010 to the summer of 2011, most of this excess liquidity was reabsorbed by means of liquidity-absorbing open-market operations. In August 2011, however, it became necessary to take action to counter the exceptionally strong Swiss franc. In the fight against the substantial overvaluation of the Swiss franc, the SNB injected the banking system with copious amounts of liquidity. In so doing, it dropped its liquidity-absorbing stance and used a range of instruments to ensure a broad-based liquidity supply through different channels. Swiss franc liquidity was expanded at unprecedented speed and to an unprecedented extent. Interest rates also reacted strongly, and in some cases even slid into negative territory. However, upward pressure on the Swiss franc remained. Only the setting of the minimum exchange rate at CHF 1.20 against the euro on 6 September 2011 brought about a sustained correction of the exchange rate level. The minimum exchange rate also had a positive effect on the foreign exchange market. Market quality, as measured by various indicators, improved substantially.
Since 6 September, the implementation of monetary policy has been entirely focused on the minimum exchange rate. From an operational viewpoint, the SNB stands ready to buy unlimited quantities of foreign currency at any time to enforce the minimum exchange rate. In the past few years, it demonstrated time and again that it is able to adapt its operations to monetary policy requirements quickly and effectively. The flexibility of our monetary policy toolkit has proven its worth.