Swiss National Bank Chairman emphasizes flexibility in inflation approach

Martin Schlegel, Chairman of the Governing Board of the Swiss National Bank (SNB), emphasized the importance of a flexible monetary policy in response to the global economic environment. Switzerland's position as a small open economy with a safe-haven currency, the Swiss franc, makes it particularly sensitive to global economic fluctuations. Schlegel noted that downturns in global demand often lead to an appreciating Swiss franc and consequently, a decrease in inflation.

To manage these dynamics, the SNB has adopted a monetary policy framework that allows for a certain degree of flexibility in accepted inflation rates. The SNB aims to maintain inflation rates between 0% and 2% over the medium term, defining this range as price stability. This approach enables the SNB to adapt to economic shocks and balance the costs and benefits of its monetary policy measures. Schlegel pointed out that although inflation has occasionally deviated from this range, it has generally returned to the targeted values relatively quickly.

The primary instrument of the SNB's monetary policy is the SNB policy rate, which sets the tone for the bank's monetary stance and serves as the cornerstone of its communication strategy. In addition, the SNB has engaged in foreign exchange interventions to combat both deflation and inflation threats. However, these interventions have significantly expanded the SNB's balance sheet and resulted in substantial fluctuations in its annual results. Schlegel stated that due to the associated balance sheet risks, the SNB's equity capital is currently well below the necessary level. Strengthening the bank's capital base is now a priority over profit distributions.

In his speech, Schlegel also highlighted the strong performance of the Swiss economy in comparison to international counterparts over the past decades. He attributed part of this success to the SNB's commitment to maintaining price stability amidst various deflationary and inflationary pressures. Looking ahead, the SNB intends to continue supporting favorable economic conditions in Switzerland by ensuring price stability.

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Source: Investing.com