Monetary policy under new constraints: challenges for the Swiss National Bank

Thomas Jordan, Chairman of the Governing Board

Jackson Hole Economic Policy Symposium: Reassessing Constraints on the Economy and Policy, 27.08.2022

The pandemic and the war in Ukraine have fundamentally changed the constraints on monetary policy. Uncertainty has increased strongly in many respects, and there has been a sharp rise in inflation.

In June 2022, the SNB raised its policy rate for the first time in 15 years and announced that further increases may be necessary in the foreseeable future. The decision was taken against a backdrop of high uncertainty. Interpreting the current data is difficult, particularly distinguishing between temporary and sustained inflationary pressure. The longer-term outlook for monetary policy is also highly uncertain. Structural factors such as the green transition or deglobalisation could lead to persistently higher inflationary pressure in the coming years.

In the post-pandemic era, ensuring price stability must be the absolute priority. A high level of uncertainty will remain over the medium to long term. In this uncertain environment, a good analytical framework is crucial. In order to conduct effective and robust monetary policy in both deflationary and inflationary regimes, a sensible institutional framework is also needed. Two factors are particularly important here. The first is seeking to achieve low inflation while at the same time allowing a certain amount of fluctuation. As a small open economy, Switzerland is constantly exposed to disruptions from abroad. The SNB's approach is to tolerate different levels of inflation within the price stability range, depending on the situation at hand. The second important factor is a narrow monetary policy mandate. A mandate that is interpreted too broadly blurs the clear focus of monetary policy on price stability and threatens a central bank's independence.