Reflections on Swiss monetary policy

Bruno Gehrig, Vice Chairman of the Governing Board

University of St. Gallen, St. Gallen, 09.01.2002

Swiss monetary policy underwent various changes in the last 30 years. These changes were more concerned with the concept of how to achieve a set target than with the target itself. After having followed various models of money supply steering, the Swiss National Bank introduced inflation forecast-based steering of interest rates at the beginning of 2000. Changes in monetary policy practices in most countries essentially go in the same direction: money supply targeting is abolished, efforts to improve transparency are considerably intensified and inflation forecasts are more widely used.

In the last few quarters the global economy cooled markedly, primarily as a result of the abrupt fall in investment activity. This change in scene has also affected the Swiss economy, which is presumably growing only slightly at present. Amid receding investments and exports, consumption has proved robust. Inflation is expected to be at around one percent in the year just started, thus remaining at unproblematic levels, and it is hardly likely to give cause for concern in the following two years. Growth will remain modest for the time being. Assuming that economic activity abroad will pick up around this summer and that the Swiss franc exchange rate will remain relatively stable, the Swiss economy is expected to clearly regain momentum during the second half of 2002.