Thomas Jordan: Current challenges for the Swiss National Bank in the area of monetary policy Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the Money Market Event of the Swiss National Bank, Zurich, 27 March 2008. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  With its forecast that GDP will grow by 1.5%-2.0% and the average inflation rate will amount to 2%, the National Bank is cautiously optimistic for the Swiss economy in 2008. However, since the summer of 2007, the international environment has taken a clear turn for the worse: Financial markets are in a serious crisis, the major economies are weakening and inflation rates are rising worldwide. This means that the SNB’s monetary policy is facing challenges on several fronts simultaneously. With regard to economic growth, the SNB is called upon to assess the consequences of the international financial crisis for the Swiss economy as precisely as possible and to analyse their implications for monetary policy correctly and at an early stage. On the inflation front, it must ensure that the measures taken in connection with the financial market crisis do not jeopardise the credibility of a monetary policy geared to long-term price stability or shake established inflation expectations. Finally, the challenge in the money market is two-fold.
To date in 2014, the rate of decline of lending to the resident private sector has shown signs of easing, in terms both of bank lending to households and of that to non-financial corporations, especially those not pursuing real estate or construction-related activities. In any event, the performance of lending at the aggregate level is affected by the need to continue redressing high private-sector debt. The NPL ratio of the Spanish banking industry continues to post higher levels than those observed a year ago. However, it has improved slightly in 2014. This correction has come about despite the fact that lending, the denominator of the ratio, has continued posting negative rates of change. Hence, the comparatively larger fall in NPL in 2014 has been the main determinant of this reduction. In the first half of this year, the Spanish banking industry posted somewhat lower consolidated profits than in the first half of 2013, although they were far removed from the heavy losses of 2012. In a setting still marked by low volumes of activity, low interest rates and a still-high level of non-earning assets, banks’ ability to generate interest income remains subject to downside pressure. These factors were offset by the decline in operating expenses and by lower losses attributable to asset impairment. As to the industry’s solvency, Spanish banks as a whole had a CET1 ratio as at June 2014 that comfortably exceeded the required minimum.