Comments on Swiss monetary policy

Thomas Jordan, Chairman of the Governing Board

106th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 25.04.2014

The environment in which Swiss monetary policy operates remains very challenging. With interest rates close to zero and a Swiss franc which is still high, the minimum exchange rate continues to be the SNB's most important monetary policy instrument for ensuring appropriate monetary conditions. An appreciation of the Swiss franc would entail a threat of deflation.

For 2014, the SNB is forecasting that the Swiss economy will grow at around 2%, driven by domestic demand and, increasingly, also by foreign demand. Given this situation, it can be expected that investment will gather momentum. Unemployment is likely to decline slightly during the course of the year. The underutilisation which still prevails is continuing to restrain consumer prices in Switzerland. Declining inflation abroad and the slightly stronger Swiss franc are having a similar impact by dampening imported inflation. The SNB's inflation forecast shows that there is no risk of inflation in the foreseeable future. In 2014, inflation in Switzerland is likely to be only 0%.

The global environment continues to present considerable uncertainties for Switzerland. Although it has not been necessary to enforce the minimum exchange rate by means of foreign currency purchases since autumn 2012, the danger has not been averted that the Swiss franc, as a safe haven, will suddenly become subject to further upward pressure. Short-term interest rates are practically zero. For this reason, the minimum exchange rate is the right tool to avoid an undesirable tightening of monetary conditions, and thereby ensure price stability.

At the same time, in the SNB's view, developments on the Swiss mortgage and real estate markets represent a risk for financial stability. Consequently, in 2013, for the first time, the SNB proposed that the countercyclical capital buffer (CCB) be activated, and at the beginning of 2014, that it be increased. Momentum on the mortgage and real estate markets was dampened somewhat. However, based on the data currently available for the first quarter of 2014, an all-clear still cannot be given. However, to obtain an idea of the overall picture we are still lacking important data. For a definitive assessment of the latest developments it is therefore too early.

The SNB will continue to examine regularly whether the CCB needs to be adjusted. The authorities are also working on the specification of measures to target risks in the area of affordability.