An appreciation of the Swiss franc at the current time would again expose Switzerland to considerable risks and, once more, endanger both price stability and the stabilisation of the economy. Given this situation, the SNB will enforce the minimum exchange rate with the utmost determination. If developments in the international economy are worse than foreseen, or if the Swiss franc does not weaken further as expected, renewed downside risks for price stability could emerge. Should the economic outlook and the threat of deflation require it, the SNB is prepared at any time to take further measures. As you will probably have deduced from this account, seen from today’s vantage point, interest rates in Switzerland are likely to remain low for a while yet. This expansionary monetary policy is indispensable from the point of view of the economy as a whole. In that it has significantly reduced the threat to the economy and the threat of a deflationary trend, the current monetary policy is also contributing to financial stability – in the short term. Both a deep recession and a deflationary trend would pose a threat to the banking system. In the longer term, a period of low interest rates carries the risk that imbalances will build up. In Switzerland, the current low-interest-rate period has now lasted for over three years. We are – in fact – currently observing increasing signs of adverse developments in the Swiss mortgage and real estate market for residential property.
It has a direct impact on financing conditions; and in doing so it indirectly keeps demand in line with the economy’s supply capacity, at a time when this capacity has been squeezed by external shocks. We need to banish one false suspicion that tends to arise in this context: the idea that monetary policy aims to create a recession, and that a choice has to be made between growth and controlling inflation. This is wrong, first because persistent inflation would mean higher risk premiums and price distortions which, in the longer term, would curtail growth. Second, from a more cyclical viewpoint, euro area activity and employment have proved resilient over recent quarters. There is therefore room to act and I want to make this clear: our achieving of disinflation will not lead to a recession. The goal now is to avoid a faster re-acceleration of demand than supply in the expected 2024-25 recovery. To achieve this, financing conditions obviously cannot remain the same today as they were when there was a demand shortfall, as in the past decade when inflation was too low for too long. Technically, we are talking about monetary tightening or “restrictive” financing conditions: these words obviously sound less appealing, but what do they mean in reality? We are first aiming, through monetary tightening, for an increase in real interest rates at different maturities.