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Monetary policy is not almighty

Journée Solutions Bancaires, Geneva , 31.05.2012

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In order to fulfil their mandates in this challenging economic climate, several prominent central banks, including the Swiss National Bank, have introduced and are continuing to maintain near-zero interest rates. This has exhausted the powers of conventional monetary policy, at a time when many countries have very little leeway with which to undertake fiscal policy manoeuvres. Central banks have therefore resorted to unconventional measures, which have helped create conditions that are more favourable to an economic recovery.

While these unconventional measures appear to have provided a positive impetus, they also generate risks. In particular, they may result in central banks being perceived as capable of solving all the problems our economies face. This is clearly not the case. The measures represent an exceptional, tailored response to troubled markets and unprecedented economic circumstances. While monetary policy can promote conditions that are conducive to growth, it does not create value in and of itself. Instead, it is private sector innovation and productivity that are the engines of real sustainable growth.