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SNB will not hesitate to adjust policy if price stability is threatened, Schlegel says
Inflationary pressures have intensified following an above-expectations October reading, Swiss National Bank Chairman Martin Schlegel said on Wednesday. Should price stability come under threat, the central bank would not hesitate to adjust policy, Schlegel added.
What did Schlegel say?
Inflation in Switzerland climbed, October figure exceeded expectations.
No major second-round effects so far, but can't be excluded later.
Central bank won’t hesitate to modify policy if price stability is endangered.
Central bank will monitor situation closely, especially for second-round inflation effects.
How did the Swiss Franc react?
The Swiss Franc (CHF) showed no reaction to the remarks from SNB's Schlegel. USD/CHF was trading around 0.8165 at the time of writing, down 0.53%.
SNB: Frequently asked questions
Switzerland’s central bank, the Swiss National Bank (SNB), operates independently with a mandate to safeguard price stability over the medium and long term. It pursues this objective by maintaining appropriate monetary conditions, shaped by interest rate levels and exchange rates. The SNB defines price stability as an annual increase of less than 2% in the Swiss Consumer Price Index (CPI).
Guided by its price stability objective, the Swiss National Bank (SNB) Governing Board sets the policy rate at an appropriate level. If inflation exceeds its target, or is expected to do so in the foreseeable future, the bank will seek to curb excessive price increases by raising the policy rate. Such increases typically support the Swiss Franc (CHF): higher interest rates lift yields and make Switzerland more attractive to investors. Lower interest rates, by contrast, generally put downward pressure on CHF.
To prevent excessive appreciation of the Swiss Franc (CHF) against other currencies, the Swiss National Bank (SNB) has regularly intervened in the foreign exchange market. A strong CHF undermines the competitiveness of Switzerland’s powerful export sector. The SNB maintained a peg to the Euro between 2011 and 2015 to restrain CHF gains against it. Its substantial foreign exchange reserves enable market intervention, typically through purchases of foreign currencies such as the US Dollar or the Euro. However, when inflation is high, particularly when driven by energy costs, the SNB holds back from intervention. A stronger CHF lowers the cost of energy imports, softening the price shock for Swiss households and businesses.
Monetary policy assessments take place at quarterly SNB meetings in March, June, September and December. Every assessment leads to a monetary policy decision, alongside the release of a medium-term inflation forecast.
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