SNB Would Cut Rates Below Zero If Needed, Tschudin Tells FuW

(Bloomberg) — The Swiss National Bank would be prepared to introduce negative borrowing costs if such a step were needed to hold consumer prices inside its target range, according to Swiss National Bank policymaker Petra Tschudin.

“Should it become necessary to lower interest rates below zero to keep inflation between 0% and 2% in the medium term, then we’ll do so,” Tschudin told Swiss newspaper Finanz und Wirtschaft in an interview published Friday.

Below-zero rates function differently to positive and that must be taken into account, “but it does not restrict us,” she added.

The SNB cut its interest rate to zero last year and has kept it there since. It faces feeble inflation, which slowed to 0.4% in July despite the global surge in energy prices caused by the Iran war.

Bloomberg reporting indicated last month that SNB officials expect no change in the benchmark through 2027 unless new shocks emerge, in line with economist forecasts.

Since then, the government reported that the economy grew five times faster than expected in the second quarter while wages are set to keep rising. As the SNB doesn’t give forward guidance, it’s unclear how this may have changed policymakers’ views.

Tschudin is the third rate-setter on the board, serving alongside President Martin Schlegel and Vice President Antoine Martin. Her remit includes managing the central bank’s large portfolio of assets in foreign currencies, as well as banking operations and digital applications.

Tschudin also said:

On interventions: “Ultimately, it always comes down to the risks to our price-stability objective. Is a price movement so significant that it substantially affects our inflation forecast and jeopardizes our monetary-policy mandate, or not? That is what we weigh.” On tools: “The main tool is the SNB’s policy rate. We use it to influence domestic interest rates — that is, bank interest rates and financing costs in the capital market. Interest rates also affect the exchange rate.” On forward guidance: “It’s a problematic concept. Especially in recent years, when we’ve been repeatedly surprised by new external shocks, the expectation of providing detailed advance information about the future course of monetary policy has become difficult.” “Financial markets rely on such declarations of intent, and if a central bank deviates from them, it incurs adjustment costs that it wouldn’t otherwise have. As a small, open economy, Switzerland is particularly exposed to international developments over which it has no control. This is an additional reason why the SNB doesn’t issue forward guidance.” –With assistance from Mark Schroers.

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