Martin Schlegel told the Swiss National Bank’s annual meeting the bank has 'unrestricted room for manoeuvre' on the policy rate and in foreign-exchange markets. The SNB is holding its policy rate at 0% and said negative rates remain an option if medium-term price stability is threatened; officials have also signalled increased readiness to intervene as the franc has strengthened, with UBS economists estimating foreign-currency purchases rose to about 2.5bn francs in March.
Room to manoeuvre: policy and intervening between meetings
Martin Schlegel, chairman of the Swiss National Bank, set out a straightforward message: the SNB can act on rates and in currency markets when required. He told the bank's annual general meeting the institution has "unrestricted room for manoeuvre" with regard to the policy rate and foreign-exchange interventions. That signals a willingness to use available monetary tools rather than being tied to a calendar-driven approach.
The SNB currently keeps its policy rate at 0%, on the cusp of negative territory. Schlegel said the bank can adjust policy even between scheduled quarterly meetings and that assessments draw on analyses from several internal teams:
- Economic Affairs
- Money Market and Foreign Exchange
- Financial Stability
Schlegel framed decisions as risk management: policymakers weigh costs and benefits across scenarios to achieve outcomes that work best in most cases. "Uncertainty must not mean indecision," he said in slides accompanying his presentation.
Negative rates: a high bar but not off the table
Schlegel was clear that reintroducing subzero interest rates carries a high bar because of side-effects on savers and pension funds. He said the bar is high but added the SNB is ready to go negative again if a threat to medium-term price stability emerges.
The SNB’s caution reflects trade-offs other central banks also face. Negative rates can compress bank margins and penalise insurance companies and occupational pension schemes that depend on positive yields; Schlegel flagged those distributional effects as reasons for prudence. Past experience in Switzerland and elsewhere showed negative rates can be costly for segments of the financial system and households reliant on interest income.
Foreign-exchange interventions and franc strength
Currency policy is front and centre. The franc has been under upward pressure for reasons cited by the SNB, including safe-haven flows linked to geopolitical tensions and specific developments that strengthened the franc versus the euro. A stronger franc can push imported goods prices down, complicating the SNB’s task of returning inflation sustainably to the mid-point of its 0–2% price stability definition.
Officials signalled increased readiness to intervene in foreign-exchange markets to cap too rapid or excessive franc appreciation. UBS economists estimate those foreign-currency purchases rose to about 2.5bn francs in March — a notable uptick from recent months, though modest compared with earlier interventions.
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UBS economists estimate foreign-currency purchases rose to about 2.5bn francs in March.
This article was created with AI assistance.
