Thomas Jordan: Comments on Swiss monetary policy Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the 106th Ordinary General Meeting of Shareholders of the Swiss National Bank, Berne, 25 April 2014. *  *  *  Mr President of the Bank Council Dear Shareholders Dear Guests The Swiss National Bank (SNB) has a mandate to ensure price stability, while taking due account of the development of the economy. The monetary policy decisions needed to fulfil this mandate have a direct impact on the size and composition of our balance sheet. As a result of the current size of our balance sheet and the nature of our investments, it can be assumed that the annual results will continue to fluctuate significantly in the foreseeable future. Since summer 2007, the global economy has experienced a series of crises. At times, it was on the brink of the abyss, and the threat to the Swiss economy was correspondingly great. In order to fulfil our statutory mandate, we have been obliged to resort to unconventional measures, rather than operating solely with the familiar monetary instruments. The most exceptional measure was certainly the introduction and enforcement of the minimum exchange rate against the euro. However, the creation of the stabilisation fund to take over illiquid assets from UBS was also a special measure. In 2013, this episode was successfully concluded. By contrast, the minimum exchange rate remains the SNB’s key monetary policy instrument.
We do not know yet how the initiative will be implemented and what effect it will have on our relationship to the EU. Consequently, the economic impact of the popular decision cannot really be properly quantified at the moment, and this is why it has not been included in our forecast. For 2014, we continue to expect economic growth of around 2%. Inflation in Switzerland and the SNB’s monetary policy The greater economic momentum which we are forecasting will gradually lead to a better utilisation of production capacity. The underutilisation which still prevails continues to restrain consumer prices in Switzerland. Declining inflation abroad and the slightly stronger Swiss franc are having a similar impact by dampening imported inflation. Thus the SNB’s inflation forecast shows that there is no risk of inflation in the foreseeable future. In 2014, inflation in Switzerland is likely to amount to only 0%. In addition, the international environment is still giving rise to high levels of uncertainty. Consequently, the danger that the Swiss franc, as a safe haven, might suddenly be subject to further upward pressure has not been averted. Short-term interest rates are practically zero. For this reason, the minimum exchange rate is the right tool to avoid an undesirable tightening of monetary conditions, since an appreciation of the Swiss franc would lead to a further decline in import prices and a renewed threat of deflation. Given this situation, the SNB is maintaining the minimum exchange rate of CHF 1.20 per euro.