Swiss monetary policy is appropriate for now, but policymakers still have room to lower already negative interest rates further or use other policies if necessary, Swiss National Bank Chairman Thomas Jordan said.
“There is no reason to change monetary policy,” given the bank’s dropping inflation forecasts and no risk of the country’s economy overheating, Jordan told a news conference on Saturday on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington.
But Jordan said the central bank still has more it can do if conditions warrant intervention.
“We always stress the point that we have still room to lower interest rates further and we have also room to use the balance sheet, if necessary, for interventions in foreign exchange markets. Both instruments are here to use depending on the situation.”
Central banks have been cautiously awaiting a resolution of a host of potential threats to growth, including the U.S.-China trade negotiations and a global economic slowdown that has been felt in Europe.
The IMF said earlier this month that Switzerland’s economic growth is expected to slow to 1.1 percent in 2019 before a “moderate” recovery in 2020, citing those risks.
The Swiss central bank has kept policy particularly loose, using negative interest rates of 0.75 percent. That means it charges commercial banks for cash they hold over a certain limit and is one of the central bank’s tools to combat the rise of the Swiss franc and maintain price stability in the country.
It has also intervened in the currency markets to stem the rise in the safe-haven franc, which hit its highest level in 20 months in recent weeks against the euro, creating a headache for the export-reliant economy.
The currency has since given back some recent gains, but Jordan on Saturday described the franc as “still highly valued.”
Negative interest rates, meanwhile, have come under fire from banks for reducing their returns. Jordan said the Swiss central bank took effects of negative rates on banks into account in designing its policy. He said the profits of the banking system have been relatively stable.
“The system was built in a way that alleviated the pressure on banks from the beginning” by exempting some bank reserves from charges for keeping their money with the central bank. But Jordan said it was important to keep an eye on risks unique to a world where many central banks set low or negative interest rates.
European Central Bank President Mario Draghi said this week that his central bank will consider whether preserving its own negative interest rate regime is causing possible side-effects on bank’s willingness and ability to lend that need to be mitigated further.