It would not be sensible to relax capital requirements when the unusual hazards persist. Today, gradually strengthening capital adequacy, and so building resilience, is best not only for stability but also for sustaining the recovery through what might lie ahead. Monetary policy With government needing to set fiscal policy in order to repair the public finances, that means that the burden of stimulating our economic recovery falls mainly to monetary policy. Bank Rate is at, effectively, zero. And the Bank has provided further stimulus, via quantitative easing, in order to underpin demand, and so guard against inflation being persistently below our 2% target further down the road. For the economy as a whole, that has bought time to smooth the adjustment. For firms, it has reduced the cost of capital and the weight of debt burdens. The equity prices of leveraged firms have generally risen more than the market as a whole. Easy monetary conditions no doubt go some way to explain why more firms haven’t failed; and why the Bank has received few approaches, under what is still known as the London Approach, to help banks and firms keep talking when a co-operative solution is within reach. In all this, the Monetary Policy Committee faces a delicate and unavoidable balancing act.
Thomas Jordan: Monetary policy under the spell of the financial crisis Summary of a speech by Mr Thomas Jordan, Member of the Governing Board of the Swiss National Bank, at the State Street Global Advisors (SSgA) Prima Talk, Zurich, 6 May 2009. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The crisis in global financial markets has led to a sharp downturn in the world economy. Unavoidably, the Swiss economy has been pulled down too. The Swiss National Bank (SNB) has reacted by considerably relaxing its monetary policy, moving – in effect – to a zero interest rate policy. The SNB is maintaining its ability to act at times of zero interest rates by making use of three unconventional measures: increasing the number of long-term repo transactions, purchasing Swiss franc bonds issued by private sector borrowers and buying foreign currency on the open market. The initial impact of these measures has been positive. Risk premiums in the money and capital markets have fallen slightly. The tendency of the Swiss franc to appreciate against the euro has been checked and volatility is declining. Curbing the upward pressure on the Swiss franc helps to protect against deflation risks in Switzerland. The Swiss economy is currently experiencing the most severe economic crisis since the midseventies.