In this way, structural reforms in the major economies can also contribute to a normalisation of the interest rate level and monetary policy worldwide – including in small open economies. In principle, structural measures that result in higher productivity growth, a lower propensity to save and a greater willingness to invest will increase the equilibrium interest rate. Absent a change in monetary policy, such an increase means that monetary conditions will become more expansionary. This would further encourage economic recovery and facilitate the implementation of these structural measures. The central banks could then gradually raise policy rates again, and the undesirable sideeffects of low or negative interest rates would be contained. Conclusion To conclude, let me sum up my remarks in five core messages. First, the low level of interest rates is a global, secular phenomenon. Real interest rates have fallen worldwide, and have been doing so steadily for the last 20 years. This suggests that the equilibrium real interest rate has declined. Underlying this are demographic trends and altered behaviour on the part of consumers and companies, which have resulted in a higher supply of savings and lower investment demand. Second, although negative nominal rates are often perceived as unnatural, the laws of economics are not inverted once the zero lower bound is breached. In principle, taking a policy rate into negative territory has a similar effect to cutting a policy rate in positive territory. In Switzerland, the negative interest rate has its main impact via the exchange rate channel.
This seems surprising at first glance but is attributable to the fact that banks tried to offset a further decline in their interest margin with increased income from credit business. Meanwhile, interest rates on mortgage loans are also lower than before the introduction of negative interest. Thus, we can conclude that taking a policy rate into negative territory has a similar effect, in terms of transmission to other interest rates, to cutting a policy rate in positive territory. Although interest rates have fallen, no significant increase in credit growth has been observed over the last two years. The volume of bank loans to businesses and households has risen further, as you can see in chart 10, but credit growth has weakened. This slowdown in growth is particularly evident among loans to private, non-financial corporations. However, the picture is different for companies that are able to finance themselves via the capital market, as chart 11 shows. Domestic non-financial corporations have exploited the low capital market interest rates and issued more bonds since the introduction of the negative interest rate. As a preliminary conclusion, we may state that the negative interest rate in Switzerland principally operates via the exchange rate channel. Together with our willingness to intervene in the foreign exchange markets, it has helped to ensure that the Swiss franc has not strengthened further despite heightened uncertainty, for example in the wake of the British EU referendum.