Swiss National Bank President Highlights Flexibility in Inflation Approach

The Chairman of the Swiss National Bank (SNB), Martin Schlegel, emphasized the importance of a flexible monetary policy in response to the global economic environment. Switzerland's position as a small open economy with the safe-haven currency, the Swiss franc, makes it particularly sensitive to global economic fluctuations. Schlegel noted that declines in global demand often lead to an appreciation of the Swiss franc, resulting in a decrease in inflation.

To manage these dynamics, the SNB has adopted a monetary policy framework that allows for a certain degree of flexibility in the accepted inflation rates. The SNB aims to keep inflation rates between 0% and 2% in the medium term, defining this range as price stability. This approach enables the SNB to adapt to economic shocks and balance the costs and benefits of its monetary policy measures. Schlegel pointed out that although inflation occasionally deviates from this range, it typically returns to the targeted values relatively quickly.

The fundamental tool of the SNB's monetary policy is the SNB policy rate, which determines the bank's monetary stance and forms the cornerstone of its communication strategy. In addition, the SNB has intervened in foreign exchange markets to combat both deflationary and inflationary threats. However, these interventions have significantly expanded the SNB's balance sheet and led to substantial fluctuations in its annual results. Schlegel mentioned that due to the associated balance sheet risks, the SNB's equity is currently well below the required level. Strengthening the bank's capital base has now become a higher priority than profit distributions.

In his speech, Schlegel also highlighted the strong performance of the Swiss economy over the past decades compared to its international peers. He attributed part of this success to the SNB's commitment to maintaining price stability amid various deflationary and inflationary pressures. Looking ahead, the SNB aims to continue supporting favorable economic conditions in Switzerland by ensuring price stability.