Let me start at home, so to speak: at the SNB. People frequently call for the SNB to abolish the negative interest rate in order to significantly ease the pressure on pension funds. But if we think things through, would that actually happen? If there were no negative interest rate, the franc would be even more attractive internationally and would appreciate. That would slow down our economy considerably, and unemployment would rise substantially. In this gloomy scenario, long-term interest rates would therefore  Page 5/8  barely increase at all. Instead, the downturn in economic activity would cloud the outlook for Swiss companies – with adverse consequences for share prices as well. So you see, under current circumstances the earnings outlook for the pension funds would not improve significantly if the negative interest rate were to be abolished. On the contrary. Higher unemployment would impact on the economy and the pension system, as it would have the effect of reducing value added and hence the contribution base. At present, it would therefore not be in the pension funds’ interest to abolish the negative interest rate. So if it is not possible in the current situation for the SNB to abolish the negative interest rate, could it not at least use the income derived from it to alleviate some of the pressure on the pension system – for example by distributing this income to the pension funds as ‘compensation’? In our view, this would not be a good idea either.
This showed that the negative interest rate, and our willingness to intervene on the foreign exchange market as necessary, are still essential in order to ease pressure on the franc, thereby stabilising price developments and supporting economic activity. Only in this way can we fulfil our mandate – to ensure price stability while taking due account of economic developments – in the interests of the country as a whole. In September, we also adjusted the basis for calculating the exemption threshold, which defines the portion of a bank’s sight deposits at the SNB on which we do not charge negative interest. This adjustment reduces the overall burden imposed on the banking system by negative interest to the minimum required for monetary policy purposes, 6 while taking account of the possibility that the low interest rate environment may persist worldwide for some time to come. While negative interest rates are unusual and should only be temporary, moderately negative rates are not fundamentally different in terms of their economic effects from interest rates above zero. As the negative interest rate has brought about an easing of financing conditions in the economy, companies are able to take out loans for investments at lower cost. For us, however, this so-called ‘interest rate channel’ is not of prime importance. Rather, it is the effect on the exchange rate that is decisive for Switzerland as a small open economy. With the negative interest rate, we can ensure that the traditional interest rate differential versus other countries is not eroded excessively.