Implementation and impact of monetary policy

Dewet Moser, Alternate Member of the Governing Board

Money Market Event, Zurich, 21.03.2013

Last year, the deterioration in the euro crisis prompted a flight from the euro to other currencies. At certain times, it also resulted in a very substantial demand for Swiss francs. To meet this demand and thereby enforce the minimum exchange rate, the Swiss National Bank (SNB) has created a lot of permanent liquidity through foreign currency purchases. Consequently, the SNB has not concluded any more transactions with temporary liquidity since mid-2012. The exceptionally low level of interest rates is an additional factor in the slowdown of activity on the money market. However, the SNB continues to bear responsibility for the Swiss franc money market. First, it still attaches great importance to reliable and representative reference rates for the money market. It works to promote them, verbally and actively, even under difficult conditions. Second, together with different players, it is working toward finding a solution for the money market infrastructure that is workable for the future. Such a structure is an important element in an efficient and competitive Swiss financial centre.

The currency purchases went hand in hand with a steep rise in the SNB's foreign currency investments. They were diversified prudently and in a market-sensitive manner, as well as possible, over time, not least with the currency breakdown in mind.

With interest rates close to zero, appropriate monetary conditions are closely tied to exchange rates. Given this environment, implementation of monetary policy is, for the foreseeable future, geared to securing the minimum exchange rate on the foreign exchange market. To this end, the SNB has further reinforced its operational planning last year.