By John Revill
ZURICH, Feb 2 (Reuters) – A combination of low inflation in Switzerland and interest rates at 0% were uncomfortable for monetary policy, Swiss National Bank Chairman Martin Schlegel said on Monday, declining to say whether the situation made negative rates more likely.
“As a central bank, my greatest concern is of course inflation and price stability, and we do everything we can to ensure that,” Schlegel told broadcaster SRF.
“At present with inflation at 0.1%, that’s at the lower end of our definition of price stability – inflation of 0-2% – and with interest rates at 0%, that is not an easy situation for monetary policy,” he added.
He said the SNB had two policy tools – interest rates and currency market interventions – to steer inflation into the central bank’s target range.
“We have already said several times that we are prepared to go into negative territory,” Schlegel said. “However, the hurdle is higher to lower interest rates into negative territory.”
The probability of reintroducing negative interest rates – unpopular with lenders and savers when last used from later 2014 to 2022 – “is difficult to say,” he added.
Instead the SNB would continue to monitor the situation, as well as the exchange rate of the Swiss franc, very closely, he said, and intervene on the forex markets if necessary.
At present though, Schlegel said he expected Swiss inflation to rise in the coming months, adding monetary conditions in Switzerland were appropriate.
Despite the recent decline in the U.S. dollar, there was also no alternative for central banks holding U.S. Treasuries as part of their foreign currency reserves, he told the Eco Talk programme broadcast later on Monday.
Schlegel declined to comment on what other central banks and sovereign wealth funds were doing, but said currency reserves had to be liquid.
“When you look at U.S. Treasuries, that is still the largest and most liquid market,” Schlegel said. “There is no alternative.”
(Reporting by John Revill, Editing by William Maclean)
Comments