Monetary policy assessment of 19 March 2020
Central bank: snb | Type: statement | Date: 2020-03-19

Monetary policy assessment of 19 March 2020
raises negative interest exemption threshold, and is examining
additional steps
Coronavirus is posing exceptionally large challenges for Switzerland, both socially and
economically. Uncertainty has risen considerably worldwide, and the outlook both for the
global economy and for Switzerland has worsened markedly. The Swiss franc is even more
highly valued, and the world’s financial markets are under strong pressure.
In these exceptional circumstances, the SNB’s expansionary monetary policy is more
necessary than ever for ensuring appropriate monetary conditions in Switzerland. It is keeping
the SNB policy rate and interest on sight deposits at the SNB at −0.75%. The SNB is
intervening more strongly in the foreign exchange market to contribute to the stabilisation of
the situation. In so doing, it takes the overall exchange rate situation into account. Negative
interest and interventions are necessary to reduce the attractiveness of Swiss franc
investments and thus counteract the upward pressure on the currency.
The SNB is also working closely with the Federal Council with the aim of providing the best
possible support to the economy.
The Swiss financial system has sufficient liquidity. The SNB will take additional steps to
ensure liquidity as necessary. It is also providing liquidity as part of the extended swap
arrangements with other central banks, particularly in US dollars.
Banks’ actions will play a key role in economic developments in Switzerland, especially in
the near term. To strengthen the banks in this role, the SNB is raising the exemption threshold
as of 1 April 2020, thus reducing the negative interest burden on the banking system. The
threshold factor will increase from 25 to 30.
Zurich, 19 March 2020
Press release
The banks have built up substantial capital and liquidity buffers in recent years. They are thus
also equipped for difficult situations affecting the economy as a whole. With a view to further
increasing the banks’ room for manoeuvre, the SNB is examining whether a relaxation of the
countercyclical capital buffer would be possible despite the risks on the mortgage and real
estate markets.
In the current situation, it is extremely difficult to assess the economic outlook, and the
forecasts are subject to an unusually high level of uncertainty. This is the case for growth and
inflation alike.
The new conditional inflation forecast is lower than in December. This is primarily due to
lower oil prices, significantly weaker growth prospects and the stronger Swiss franc. The
forecast for the current year is slightly in negative territory at −0.3%. The inflation rate is
likely to be slightly positive in 2021 at 0.3%, before rising to 0.7% in 2022. The conditional
inflation forecast is based on the assumption that the SNB policy rate remains at –0.75% over
the entire forecast horizon.
The global economic outlook has changed abruptly in recent weeks. At the turn of the year,
various surveys had initially pointed to an improvement in the world economy. The easing in
international trade tensions fostered the expectation of a gradual pick-up in economic activity
worldwide in the coming months. However, the global spread of coronavirus and the
measures necessary to contain the pandemic have interrupted this positive development and
will result in significant economic declines.
In China, economic activity was already contracting strongly in broad areas of the country
from January. Since mid-February, coronavirus has rapidly spread across the world, and in
particular also to Switzerland’s key trading partners in Europe and North America.
Restrictions on public movement, interruptions in production, supply chain disruptions and
curbed household consumption will weigh heavily on economic activity in all affected
countries.
In this environment, the global economic outlook is extremely uncertain. Pronounced
economic declines are to be expected in the first half of 2020. The speed with which the
global economy subsequently recovers will hinge on the combined impact of healthcare, fiscal
and monetary policy measures.
Against the backdrop of the spread of coronavirus, the short-term outlook has also worsened
markedly for Switzerland. In December, the SNB had still expected growth of between 1.5%
and 2% for 2020. However, the downturn in the international economy and the measures to
contain the virus will lead to a marked decline in economic activity in Switzerland as well in
the first half of the year. As soon as the national and international containment measures can
be lifted, economic activity is likely to return to normal, albeit gradually. Even under this
assumption, however, GDP growth is likely to be negative for the year as a whole. The return
Zurich, 19 March 2020
Press release
to normality from the second half of the year onwards could thereafter be reflected in strong
positive growth in 2021.