SNB Will Intervene If Needed, But Are Its Rates Main Tool, Tschudin Says
(Bloomberg) — The Swiss National Bank won’t shy away from stepping into currency markets if required, while interest rates are the key tool, according one its top officials.
“Our main instrument for monetary policy is the interest rate,” Governing Board member Petra Tschudin said on Thursday. “We’ve also already been doing interventions for a long time — if they are necessary. And I always say, if it’s necessary, we’re ready to use this instrument.”
Tschudin’s remarks coincide with a period of heightened scrutiny on Switzerland, whose franc has strengthened some 13% against the dollar this year and more than 1% against the euro. Last week, it closed in on its highest in a decade against the common currency.
With its rate already at zero, strength in the currency could put the SNB in a bind if it were to threaten price stability at a time when inflation is also near zero.
The choice of response for officials would fall between inflicting negative borrowing costs on the economy, knowing that such a measure can harm the financial system, or resort to currency interventions that bloat their balance sheet and annoy the Americans.
Policymakers have stressed that there’s a higher bar for any decision to cut their rate below zero than for a normal reduction.
“We would introduce negative rates if we had to,” Tschudin said. “We know that they work.”
Several analysts have recently flagged that the institution may currently be stepping into markets, though it’s likely that SNB officials would argue such interventions conform to a recent joint accord with US authorities that states that they’re an “appropriate” tool against “disorderly” fluctuations.
Addressing an event at the University of Basel, where she obtained her doctorate, Tschudin highlighted that “we have built up a very good dialogue” with the US Treasury, adding that it understands that the SNB isn’t intervening to gain an unfair advantage.
She spoke just days before the release of the October reading for Swiss inflation, which has stayed at 0.2% for the past three months. That’s close to the lower end of the SNB’s 0-2% target range. Officials are counting on consumer-price growth to pick up moderately.
Tschudin repeated earlier comments that brief periods of sub-zero inflation isn’t a problem for the SNB.
The SNB has also drawn attention by starting the release of a new quarterly summary of its rate meetings, the first of which was published this month.
Asked why the SNB doesn’t publish how the three rate setters on the Governing Board voted in rate decisions, Tschudin explained that this doesn’t happen.
“We don’t vote,” she said. “We discuss until we agree.”
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