Since mid-January this year, the SNB’s monetary policy has been based on two complementary pillars: The negative interest rate and our willingness to intervene on the foreign exchange market as required. These instruments are proving effective at countering excessive pressure on the exchange rate, thereby ensuring price stability in the medium term. However, I would like to stress that, at current levels, the Swiss franc remains significantly overvalued. With an interest rate of –0.75% on sight deposits, we have gone far compared to most other countries. We have observed that money and capital markets are functioning smoothly under the negative interest rate. However, mortgage rates have not fallen to the same extent as interest rates on money and capital markets. Hence, fears that the negative interest rate  3  Jordan, T. (2015) “The impact of international spillovers on inflation dynamics and independent monetary policy: the Swiss experience”, conference paper prepared for the 39th Economic Symposium on ‘Inflation Dynamics and Monetary Policy’ in Jackson Hole, 28 August 2015. BIS central bankers’ speeches  5  could contribute to imbalances on the mortgage and real estate markets have so far proved unfounded. Finally, economic conditions remain challenging in Switzerland. The SNB monitors the situation continuously, and our latest analysis and forecast will be published at the next monetary policy assessment on 10 December. In general, we believe that the economy has returned to a moderate path of recovery, although significant downside risks remain. These originate, in particular, from the fragile international environment and exchange rate developments.
Douglas Elliott has made the point that we entered the crisis at a point in the history of economic policymaking where we had abandoned all macro tools other than the use of interest rates, the price of money. This was fairly unprecedented. We had lost confidence in quantitative tools in monetary policy, and the role of reserve money had been diminished. We had very little in the way of bank liquidity policy, of which holdings of reserve money are an important part. The experience of the crisis tells us that we have to keep working hard to re-develop these tools and to knit large firm supervision into the picture. In my experience, it doesn’t happen naturally. This brings me to the fourth and final thought on supervision. It was absolutely essential and natural that the immediate reaction to the crisis was to re-build regulation and supervision in respect of the core prudential All speeches are available online at building blocks, which are solvency (capital) and liquidity (funding). And, we had work to do, and still have, to get these core elements into better shape. And the work of interpreting these standards will never stop because the precise forms of risk taking will evolve. But, when I have stepped back and looked at the causes of the crisis in firms, another thing stands out.