GENEVA (Reuters) – It is premature for the Swiss National Bank to considering tightening monetary policy even a decade after the outbreak of the global financial crisis, SNB Governing Board Member Andrea Maechler said.
Robust economic growth in many parts of the world has prompted some central banks to start gradual tightening steps, she said in remarks prepared for an SNB event on Thursday.
“For the SNB, though, it is still too early to contemplate taking such action… Although economic developments are favourable, inflationary pressures remain low. Moreover, the Swiss franc remains highly valued and the situation on the foreign exchange market is still fragile,” she said.
Maechler noted that inflation has stayed low in most advanced economies despite an economic upturn. She attributed this to firmly anchored inflation expectations thanks to monetary policy geared to price stability, and to structural factors linked to globalisation that may help moderate prices.
She highlighted the impact of digitalisation, citing studies that the growth of online trade may have helped to almost double the speed of price adjustments in the U.S. retail industry.
“Switzerland too has seen a trend towards faster price adjustments over the last few years. Thus, shocks such as strong appreciation or depreciation of the Swiss franc could feed through to inflation more rapidly in the future,” she said.
Maechler said the SNB was closely tracking developments on foreign exchange markets given that currency intervention was an important tool in implementing SNB monetary policy.
She again urged money market participants to ensure a smooth transition from the Libor reference interest rate, which is being phased out after manipulation scandals.
“I would like to emphasise that the SNB retains its ability to steer interest rates even without the Libor. For instance, it is currently doing so by means of the negative interest rate on the sight deposits which the banks hold at the SNB,” she said.
“The disappearance of the Libor or the transition to another interest rate would change nothing in that respect,” she said, adding the SNB would announce in due course changes to its strategy of steering the market via a target range for three-month Swiss franc Libor.
(Reporting by Michael Shields)