Swiss National Bank (SNB) Chairman Martin Schlegel is speaking at the post-policy meeting press conference on Thursday, explaining the reasons behind the interest rate hold decision.
Key quotes
Inflation pressure is virtually unchanged compared to previous quarter.
Uncertainty about inflation and economic development still elevated.
inflation forecasts remain with price stability range over forecast horizon.
Will monitor and adjust monetary policy as necessary.
US tariffs present a major challenge, are likely to dampen economic activity.
Remains willing to be active in forex markets as necessary.
The bar to go into negative rates is higher than for a normal rate cut, but if necessary ready to use all tools.
Switzerland has very high tariffs, for companies it can be very challenging.
Large part of economy not affected by tariffs.
Impact of tariffs on economy as a whole is limited.
About 4% of Swiss exports directly hit by US tariffs.
Monetary policy is currently expansive.
We are not speaking about re-introducing a minimum exchange rate, situation is different to 2011.
We would cut interest rates if inflation falls outside price stability range over the medium-term.
In the meantime, we can have negative inflation prints in the short-term.
But what is more important is how inflation will trend over the medium-term outlook.
We do not give any forward guidance, will decide things quarter to quarter.
Not limited in currency market interventions.
When we think it is the correct action, we will do so.
Market reaction to SNB Schlegel’s comments
As of writing, USD/CHF is holding higher ground near 0.7965, adding 0.18% on the day.
Swiss Franc FAQs
The Swiss Franc (CHF) is Switzerland’s official currency. It is among the top ten most traded currencies globally, reaching volumes that well exceed the size of the Swiss economy. Its value is determined by the broad market sentiment, the country’s economic health or action taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franc was pegged to the Euro (EUR). The peg was abruptly removed, resulting in a more than 20% increase in the Franc’s value, causing a turmoil in markets. Even though the peg isn’t in force anymore, CHF fortunes tend to be highly correlated with the Euro ones due to the high dependency of the Swiss economy on the neighboring Eurozone.
The Swiss Franc (CHF) is considered a safe-haven asset, or a currency that investors tend to buy in times of market stress. This is due to the perceived status of Switzerland in the world: a stable economy, a strong export sector, big central bank reserves or a longstanding political stance towards neutrality in global conflicts make the country’s currency a good choice for investors fleeing from risks. Turbulent times are likely to strengthen CHF value against other currencies that are seen as more risky to invest in.
The Swiss National Bank (SNB) meets four times a year – once every quarter, less than other major central banks – to decide on monetary policy. The bank aims for an annual inflation rate of less than 2%. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Macroeconomic data releases in Switzerland are key to assessing the state of the economy and can impact the Swiss Franc’s (CHF) valuation. The Swiss economy is broadly stable, but any sudden change in economic growth, inflation, current account or the central bank’s currency reserves have the potential to trigger moves in CHF. Generally, high economic growth, low unemployment and high confidence are good for CHF. Conversely, if economic data points to weakening momentum, CHF is likely to depreciate.
As a small and open economy, Switzerland is heavily dependent on the health of the neighboring Eurozone economies. The broader European Union is Switzerland’s main economic partner and a key political ally, so macroeconomic and monetary policy stability in the Eurozone is essential for Switzerland and, thus, for the Swiss Franc (CHF). With such dependency, some models suggest that the correlation between the fortunes of the Euro (EUR) and the CHF is more than 90%, or close to perfect.