As in Australia and Canada, by law the political authorities have the right to issue instructions to the central bank in matters of special importance. However, this right has never been exercised. The Norges Bank Act requires Norges Bank to inform the ministry when, in the opinion of the Bank, there is a need for measures to be taken by others than the Bank in the field of monetary, credit or foreign exchange policy. For example, in a scenario with a sharp and prolonged fall in oil prices, the krone exchange rate may remain outside the initial range for an extended period. If Norges Bank responds by raising interest rates in order to force the krone back to its initial range, monetary policy could trigger a recession of a type that will undermine confidence in the krone. Similarly, after an appreciation a situation may arise in which interest rates must be set at such a low level to return the krone exchange rate to the initial range that this results in higher inflation. The basis for exchange rate stability is weakened in both cases. Hence, Norges Bank cannot with open eyes orient policy instruments in such a way that they fuel inflation or lead to a deflationary recession.
It will open in July, with a staff of seven. The Singapore office will concern itself only with trading; settlement will continue to take place in Zurich. The branch office is completely subordinate to existing SNB oversight and control. Swiss franc money market and reference interest rates The continuing high level of Swiss franc liquidity has had the desired effect of keeping money market interest rates at close to zero. The three-month Libor has been at around two basis points since mid-January. Interest rate expectations, based on Libor future contracts, are also close to zero for the foreseeable future, but not negative, as was the case over much of last year. As a result of the very low money market interest rates and high liquidity in the banking sector, money market turnover has dropped substantially in recent years. This is illustrated in chart 2, which shows the total of banks’ sight deposits at the SNB, as well as turnover in the area of secured and unsecured call money. The small number of transactions on the money market is a problem for generating representative reference interest rates. In addition, the selection and setting of reference interest rates has come under the scrutiny of market participants and the public, as a consequence of the Libor manipulation. As regards the problems surrounding the Libor, efforts at reform are underway on an international level. To ensure the continuation of the Libor, a raft of measures have already been initiated.