TheSwiss National Bank has materially stepped up interventions and is sticking with its negative rates in light of the “enormous” upward pressure on the franc caused by the coronavirus pandemic, its President Thomas Jordan told newspaper Sonntagszeitung.
With the global economy in the throes of its deepest dive since the 1930s, other central banks’ stabilization measures have added to appreciation pressure on the Swiss currency, he said in the interview.
“Due to crisis-driven inflows into franc-denominated assets, we’re more active on foreign exchange markets to lessen pressure on the franc,” Jordan said, adding that the SNB never publishes details on its transactions. “But I want to stress that we’re engaging substantially.”
Along with a deposit rate of -0.75%, purchases of foreign currency have long been part of the SNB’s toolkit to counter a rise in the franc and prevent a sustained fall in consumer prices. The negative interest rates aren’t popular with banks..
“We will get rid of it as soon as the situation allows,” he said. “But at the moment the negative interest rate is necessary,” to prevent greater harm to the economy.
With shops, theaters and restaurants shuttered to control the outbreak, Switzerland is on course for its largest economic contractionin decades this year. The government has deployed some 60 billion francs ($62 billion) worth of measures to help soften the blow.
Although initially the expectation was for a quick bounce back, it’s increasingly looking like Switzerland, like many other advanced economies, will be living with the effects of the pandemic for some time, Jordan said.
Business activity is only about 70% or 80% of its normal level, and “that’s causing enormous costs — about 11 billion francs to 17 billion francs per month,” Jordan said. “Many may not yet be able to imagine what these numbers mean for prosperity in Switzerland,” and they will preoccupy society for some time.
In response to a question about whether inflation might rise as a consequence of the massive fiscal stimulus deployed around the world, Jordan said that currently the pressure was deflationary.
“We’ll see how that continues,” he said. “We don’t know how globalization will develop and whether international trade will be lower than before.”
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