However, as development in this area progresses it is probable that the number of specialised macroprudential-policy tools will increase. 10  10  The Bank of England recently carried out an inventory of the tools that could be used to conduct macroprudential policy, see Bank of England (2011): Instruments of Macroprudential Policy: A Discussion Paper prepared by Bank of England and Financial Services Authority staff, December 2011. BIS central bankers’ speeches  5  But do we really need any new tools in this area? Isn’t it enough that the supervisory authority can introduce a mortgage cap for consumer protection reasons and that the central bank can raise the interest rate to stabilise inflation and resource utilisation when credit growth is high? No, I don’t think so. Referring to consumer protection seems to be an overly narrow approach in the face of a rapid growth in lending to households and rising housing prices. On the other hand, the impact of the interest rate is too wide-ranging to be effective and risks doing more harm than good. A tool such as the countercyclical capital buffers may seem to be so wide-ranging that it should be able to work in approximately the same way as the interest rate. Both tools affect the price of credit in the economy. When the banks are forced to hold more capital their funding costs increase, as they do when the interest rate is raised, and the price of credit also increases.
Last summer, sparked by the debate about a possible reduction in the US Federal Reserve’s bond purchase programme, long-term interest rates rose across the globe. Switzerland was no exception. The most recent interest rate reduction by the European Central Bank (ECB), by contrast, had little effect on Switzerland. One possible reason for this is that money market rates in the euro area were already at a very low level before the ECB’s decision and did not fall any further. Since October 2011, inflation rates in Switzerland have been predominantly negative. The introduction of the minimum exchange rate in September 2011 prevented a more severe deflationary trend, however. Lower price levels in Switzerland reflect, on the one hand, the impact of the past appreciation of the Swiss franc on import goods prices. On the other hand, price developments show clearly that domestic companies are lowering their costs so as to improve their price competitiveness. More than two years after the introduction of the  2  BIS central bankers’ speeches  minimum exchange rate, both effects have weakened considerably; this is also reflected in the current path of inflation. At the same time, inflation abroad is receding, especially in the euro area. The inflation differential between Switzerland and the euro area has thus decreased significantly. Inflation differentials play an important role in the valuation of the Swiss franc. This decreased inflation differential means that the real effective exchange rate will hardly change from now on and will remain considerably above its long-term average.