Swiss Franc Strength Is Shifting Inflation, SNB Chief Says

(Bloomberg) — The Swiss franc’s gains have become significant enough in recent weeks to materially affect the inflation outlook, according to Switzerland’s central bank chief.

Compared with the Swiss National Bank’s last meeting in December, the next quarterly decision will take account of moves in the currency that go beyond just nominal increases seen previously, President Thomas Jordan said.

“The big difference is now that the Swiss franc became stronger, especially in the last week of last year,” he told Bloomberg Television in Davos. “This already had some impact — the inflation outlook was slower.” 

While the SNB has a more generous goal for consumer-price growth than its peers — it’s within target if that rate is between 0% and 2% — it has confronted sub-zero inflation in the past. If the franc is too high, there’s a threat that scenario could reemerge. 

With global central banks expected to start cutting interest rates this year and the Federal Reserve poised to lead the charge for richer countries, the SNB is already enjoying weaker price increases than many peers. Officials last raised borrowing costs in June, stopping any further moves as the currency strengthened.  

“For quite a long time we had mainly a nominal appreciation — that was very helpful, because that shielded us from the inflation pressure from abroad,” Jordan said. “In the last couple of weeks of last year, we saw real appreciation. That makes the situation for some of our firms more difficult.”

The Swiss franc fell against most of its Group-of-10 peers after Jordan’s comments. It traded as much as 0.3% weaker against the euro at 0.9399, extending losses from a nearly nine-year high touched at the end of December.

Over the course of 2023, the franc advanced more than 6% against the common currency, posting its strongest rally since 2015, when the central bank unexpectedly removed a cap on its strength. 

While some analysts see Swiss rate cuts as soon as March, Jordan has regularly been more cautious in his statements. In December, he observed that the central bank doesn’t have to signal any adjustment in policy.

“At the moment it looks like we have adequate monetary conditions,” he said on Wednesday. “That may change.”

–With assistance from Vassilis Karamanis.

(Updates with SNB’s inflation target in fourth paragraph)

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