Comments on the SNB’s monetary and investment policy

Thomas Jordan, Chairman of the Governing Board

109th Ordinary General Meeting of Shareholders of the Swiss National Bank, 28.04.2017

Against the backdrop of low inflation and underutilised production capacity in Switzerland, the Swiss National Bank (SNB) is maintaining its expansionary monetary policy. Global economic developments are largely positive, although the euro area has some catching up to do. The European Central Bank’s monetary policy remains expansionary.

The Swiss franc is still significantly overvalued. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are necessary and appropriate to ease pressure on the Swiss franc. Negative interest has at least partially restored the traditional interest rate differential against other countries. When demand for the Swiss franc is particularly strong, the SNB supplies the market with additional francs by making foreign currency purchases. Without the negative interest rate and the SNB’s willingness to intervene in the market, the Swiss franc would be even stronger, inflation would fall once again, and unemployment would rise.

In the last financial year, the SNB made foreign currency purchases totalling CHF 67 billion. In view of the resultant growth in its balance sheet, the SNB’s investment policy has gained in importance. The SNB’s investment policy has to help it fulfil its monetary policy mandate and give it the necessary room for manoeuvre.

To ensure that the balance sheet can be used at any time for monetary policy reasons, the SNB invests its foreign currency in safe and liquid securities. Furthermore, the SNB invests its currency reserves with the aim of preserving their value over the long term. In recent years, the SNB has continuously expanded its investment universe in terms of investment category, investment market and currency. It is thus able to quickly invest new foreign currency purchases and also to resell them if necessary. Furthermore, the inclusion of new investment categories enables broad diversification and contributes to the value preservation of currency reserves.

A growing balance sheet inevitably leads to greater fluctuations in annual results: both absolute potential profit and absolute potential loss become higher. Occasional losses, and even temporarily negative equity capital, are not fundamentally a problem for the SNB, which still maintains its ability to conduct monetary policy. Nevertheless, we are determined to avoid such situations. The policy on provisions and the profit distribution agreement are therefore geared towards ensuring a sound capital base.