Swiss National Bank (SNB) President Martin Schlegel said during European trading hours on Wednesday that there is a high probability of “recording negative inflation this year,” however, a few months of negative inflation “will not be a problem.”
Market reaction
There appears to be a minimal positive impact of the SNB’s Schlegel comments on the Swiss franc, despite being technically unfavorable. However, USD/CHF is trading 0.3% higher, approaching 0.7925.
Swiss National Bank FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mission is to ensure price stability in the medium and long term. To ensure price stability, the Swiss National Bank aims to maintain appropriate monetary conditions, which are determined by the level of the interest rate and exchange rates. For the Swiss National Bank, price stability means that the Swiss CPI rises by less than 2% per year.
The Governing Council of the Swiss National Bank (SNB) decides the appropriate level of the interest rate in accordance with the goal of price stability. When inflation is above target or expected to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising the interest rate. Higher interest rates are generally a positive for the Swiss Franc (CHF) because they lead to higher returns, making the country a more attractive place for investors. Conversely, low interest rates tend to weaken the Swiss franc.
Yes. The Swiss National Bank (SNB) regularly intervenes in the foreign exchange market to avoid the Swiss franc (CHF) from appreciating too much against other currencies. A strong Swiss franc hurts the competitiveness of the country’s strong export sector. Between 2011 and 2015, the Swiss Central Bank implemented a peg to the euro to limit the advance of the Swiss franc against it. The bank intervenes in the market using its huge foreign exchange reserves, usually by purchasing foreign currencies such as the US dollar or the euro. During periods of high inflation, especially due to energy, the SNB refrains from intervening in markets because a stronger Swiss franc makes energy imports cheaper, cushioning the price shock for Swiss households and companies.
The Swiss Central Bank meets once every three months – in March, June, September and December – to assess its monetary policy. Each of these assessments leads to a decision on monetary policy and the publication of medium-term inflation expectations.
