SNB Stepped Up Interventions and Can Lower Rates, Jordan Says

This content was published on May 10, 2020 - 07:56

(Bloomberg) -- The Swiss National Bank intensified its foreign exchange interventions and can cut interest rates further as the pandemic exerted “enormous” upward pressure on the franc, Swiss weekend newspapers quoted its President Thomas Jordan as saying.

With the global economy in the throes of its deepest dive since the 1930s, haven demand intensified and other central banks’ stabilization measures also added to appreciation pressure on the Swiss currency, Jordan told newspaper SonntagsZeitung.

“Due to crisis-driven inflows into franc-denominated assets, we’re more active on foreign exchange markets to lessen pressure on the franc,” Jordan said, adding that the SNB never publishes details of its trading. “But I want to stress that we’re engaging substantially.”

Along with a deposit rate of -0.75%, purchases of foreign currency have long been part of the SNB’s toolkit to counter a rise in the franc and prevent a sustained fall in consumer prices.

Unlike the Bank of England, the SNB hasn’t responded to the coronavirus crisis with a rate cut. But the ultra-low policy benchmark could still be lowered, Jordan reiterated.

“We still have room to maneuver if necessary but today we’re concentrating on foreign exchange interventions to limit pressure on the franc,” was quoted as saying by Le Matin Dimanche and Tribune de Geneve.

Still Necessary

The negative rates aren’t popular with Switzerland’s banks and Jordan said the SNB would scrap them when possible. But for the time being they’re necessary to safeguard the economy.

With shops, theaters and restaurants shuttered to control the outbreak, Switzerland is on course for its largest economic contraction in decades this year. The government has deployed some 60 billion francs ($62 billion) worth of initiatives to help soften the blow.

Although initially the expectation was for a quick bounce back, it’s increasingly looking like Switzerland, like many other advanced economies, will be living with the effects of the pandemic for some time, Jordan said.

Business activity is only about 70% or 80% of its normal level, and “that’s causing enormous costs -- about 11 billion francs to 17 billion francs per month,” Jordan told SonntagsZeitung.

In response to a question about whether inflation might rise as a consequence of the massive fiscal stimulus deployed around the world, Jordan answered that currently the pressure was deflationary. But that might change, in part as globalization and international trade evolve.

“With the crises, countries’ money supply has risen sharply while rates remained very low,” he said. “At some point, you have to expect inflation to return. Central banks will then have to ensure stability by tightening monetary policy and reducing liquidity in the financial system.”

(Updates with quotes from further weekend newspaper interviews)

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