Despite the strong demand for Swiss francs and the low interest rates in Switzerland, we can see that, overall, volume on the Swiss franc bond market has barely changed. In contrast to the situation in other countries, the level of debt has not risen, even though financing conditions have been favourable. Swiss franc assets have become less attractive in the eyes of investors, especially those from abroad. This suggests that investors have placed only a modest portion of their newly acquired Swiss francs in Swiss franc securities. Thus, monetary policy measures have also been transmitted to the Swiss franc capital market. At the same time, we observe that the way in which investors hold their additional Swiss franc positions has changed. It appears that instead of holding Swiss franc deposits, they are increasingly making use of derivatives in order to hedge foreign currencies. The growing share of hedged foreign currency assets held by Swiss pension funds seems to confirm this picture. Given this situation, the SNB is maintaining its expansionary monetary policy, which continues to be based on two key elements: a negative interest rate (–0.75%) on sight deposits at the SNB and our willingness to intervene in the foreign exchange market as necessary. This policy aims to stabilise price developments and support economic activity. The weakening of the Swiss franc in recent months has helped to reduce, to some extent, the significant overvaluation of the Swiss franc in recent months. Nevertheless, the currency remains highly valued.
Case Study 6: Stabilization measures of 2012 Mr. Chairman, the next illustration I want to present to you is one of the clearest examples of policy co-ordination between fiscal and monetary policy. That was the stabilization package of 2012, which was introduced by the MoF and the CB from February to April 2012, in response to the pressure on the balance of payments, high imports, high credit growth and pressure on the exchange rate. As we all know, to deal with that growing tension, the Central Bank increased the policy interest rates, allowed the exchange rate to be more flexible and placed a 18% credit ceiling upon banks’ lending. In tandem, the Government imposed higher duties on the import of vehicles and a few other commodities, and increased the administratively determined prices of petroleum products. These measures were implemented in a carefully planned out and logical sequence. As a consequence, the desired stability within the economy was achieved quickly, with the Balance of Payments returning to positive territory, and the exchange rate stabilizing. In fact, this new situation enabled the Monetary Board to relax the monetary policy tightening cycle that commenced in February 2012, as early as in December 2012. This joint exercise therefore shows how quickly and effectively, a coordinated fiscal and monetary policy could deliver results, instead of the implementation of stand-alone monetary or fiscal policies, which usually take a long time to impact the economy, thus resulting in to the entire economy having to suffer from tight policies for longer periods of time.