January 23, 2022
  • January 23, 2022

SNB chief says policy will remain expansionary despite rising inflation

By on June 17, 2021 0

Thomas Jordan, President of the Swiss National Bank (SNB), takes a break at the Swiss International Finance Forum in Bern, Switzerland.

Matthieu Lloyd | Getty Images

LONDON – The Swiss National Bank on Thursday raised its inflation and GDP forecasts, but pledged to keep its monetary policy ultra-flexible to counter the popular Swiss franc.

Inflation is now expected to reach 0.4% in 2021, against a previous forecast of 0.2%, reaching 0.6% in 2022 and 2023, while GDP is now expected to grow by 3.5% this year, in up from its previous forecast of 2.5%. and 3%.

However, SNB Governor Thomas Jordan told CNBC that was not reason enough to change course, as the central bank kept its policy rate at a global low of -0.75%.

The European Central Bank and the US Federal Reserve both raised their inflation forecasts last week in response to sharp price increases, the latter offering a hawkish signal that two interest rate hikes could come down in 2023.

Jordan pointed out that even the Swiss two- and three-year inflation outlook of 0.6% remains weak relative to its international peers, with the ECB expecting annual inflation in the euro area to reach 1, 9% this year and 1.5% in 2022. The SNB stressed in Thursday’s report that it expects long-term inflation to be firmly anchored at 1%.

“We are very happy to have returned to positive territory but inflation remains very, very low,” Jordan said.

“For us it is clear that we still need an expansionary monetary policy. The Swiss franc is highly valued, inflation is very low, the output gap is still negative so overall I think that ‘it is necessary to keep the monetary policy unchanged – negative interest rate of interest – but also the willingness to intervene if necessary in the foreign exchange markets is very important at the moment, “he said, adding that this would probably be the case “for some time to come”.

Pressure on the Swiss franc

The US Treasury Department recently dropped its label of Switzerland as a currency manipulator after the administration of former President Donald Trump released the label in December following the SNB’s intervention on foreign exchange markets. The SNB rejected the designation, citing extenuating circumstances surrounding the high value of the Swiss franc.

Jordan noted that the currency, often seen as a so-called “safe haven” in foreign exchange markets, experienced “huge inflows” during the first half of 2020 as the Covid-19 pandemic struck, resulting in required the intervention of the SNB.

“The Swiss franc is still very valued and this is one of the reasons why we have low inflation, probably lower inflation than elsewhere, and it is also one of the main reasons why we must maintain our expansionary monetary policy for a while, ”he said.

Karsten Junius, chief economist of asset manager J. Safra Sarasin, said in a note on Thursday that the SNB’s political stance seemed “a little defensive” in an environment characterized by strong Swiss exports, a booming global economy. boom and “less and less evidence that the Swiss franc is materially overvalued.”

“Therefore, we also do not see the need for strong currency interventions in the coming months and believe that the SNB may allow some strength of the CHF,” he said.

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