The Swiss National Bank (SNB) released its monetary policy assessment the other day – leaving the rate unchanged at -0.75%. However, the details in the press conference that followed show how difficult it is for the SNB to cope with the Swiss Franc (CHF) safe-haven status and the challenges ahead during the COVID-19 pandemic.
SNB’s Jordan Press Conference Details
For those wondering why the SNB interest rate decision was important this week, the answer comes from the press conference. The SNB holds a press conference only twice a year – the last one was in December 2019. Therefore, anyone interested in more details about the SNB’s monetary policy and what the thoughts of its Chairman of the Governing Board are, this is one of the two moments in a year to pay attention.
To put things into perspective, consider that the European Central Bank (ECB) holds a press conference after every monetary policy decision – every six weeks. The Federal Reserve of the United States (Fed), holds one every other six weeks. Bank of England (BOE), holds one only when it changes the interest rate. Therefore, yesterday was an important moment to find out what the SNB view is about the coronavirus pandemic, the measures it took, or is willing to take, and the FX interventions.
The SNB left the policy rate and interest rate on sight deposits at -0.75% – the lowest level among developed nations, and perhaps in the world. Uncertainty affects inflation and growth prospects, and the SNB sees a lower inflation forecast than in March.
As for the Swiss economy, the SNB acknowledged that the Swiss economy is in a sharp recession, albeit the economic activity has picked up somewhat again since May. Inflation, as well, is expected to pick up moving forward.
In Jordan’s press conference, he reiterated that the SNB keeps an expansionary monetary policy but keeps an eye on the overall exchange rate. Moreover, Jordan expressed its full support on the negative interest rate moving forward, the raising of the negative exemption threshold announced recently, and the countercyclical buffer deactivation announced recently – all these, to make it easier for banks to lend to people and businesses.
As it happens in other central banks jurisdictions, it is not much about what the central bank wants or intends, but about what the end result is. If the commercial banks cannot find businesses to pass forward the easy monetary conditions offered by the central bank, the money velocity declines, and the economic recovery takes longer than planned.
The SNB delivered – now it is up to the commercial banks and the consumer to make the most of the conditions offered.