What are the consequences of the war in Ukraine for the SNB's monetary policy?
Thomas Jordan, Chairman of the Governing Board
114th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 29.04.2022
Russia's attack on Ukraine has fundamentally changed the geopolitical situation. However, it also has far-reaching economic consequences and poses the question as to whether the integration of the global economy will decrease again.
The globalisation of the past thirty years or so has given rise to considerable economic interconnectedness worldwide. Greater division of labour globally, increased international investment of capital and a massive transfer of knowledge between countries have led to higher economic growth and greater prosperity.
The increasing integration also had consequences for monetary policy, however, as the global production of goods considerably reduced inflationary pressure. This enabled central banks to react more strongly to adverse economic developments. In the past 15 years, they have repeatedly eased their monetary policies during crises to prevent severe economic declines and persistently negative inflation rates.
As a result of the coronavirus pandemic, the major economic blocs began 2022 with significantly higher inflation rates, and the war and sanctions against Russia have led to a marked rise in energy and commodity prices, thus increasing inflationary pressure further. The war will impact on the real economy, and the scale of the consequences is still difficult to assess. There are important questions for monetary policy: How broad and persistent is the current inflationary pressure? To what extent will the global economy be curbed? These are pertinent questions in Switzerland, too, although inflationary pressure here is comparatively moderate.
The war in Ukraine is likely to have longer-term consequences beyond this. From the current perspective, it appears possible that the degree of integration in the global economy will decrease again. This would have a major impact on inflation and the economy, the two most important variables for monetary policy. Central banks therefore have to be very vigilant in tracking this development in order to correctly contextualise the effects of the various forces and to fulfil their mandate even under changing circumstances.