News conference
Berne, 15 December 2016
Thomas Jordan
Introductory remarks by Thomas Jordan
Ladies and gentlemen
It is a pleasure for me to welcome you to the Swiss National Bank's news conference. I will
begin by explaining our monetary policy decision and our assessment of the economic
situation. I will then hand over to Fritz Zurbrügg, who will speak about current developments
in the area of financial stability and announce the dates for the release of the new 20-franc
banknote. After that, Andréa Maechler will review the situation on the financial markets and
discuss the impact of negative interest on the money and capital markets. Finally, we will - as
ever - be pleased to take your questions.
Monetary policy decision
Let me begin with our monetary policy decision and the inflation forecast.
Our monetary policy remains expansionary and continues to be based on two elements: the
negative interest rate and our willingness to intervene in the foreign exchange market. We are
leaving interest on sight deposits at the SNB at -0.75% and the target range for the
threemonth Libor will remain unchanged at between -1.25% and -0.25%. At the same time, we
will remain active in the foreign exchange market as necessary, while taking the overall
currency situation into consideration.
The SNB's expansionary monetary policy is aimed at stabilising price developments and
supporting economic activity. The negative interest rate and our willingness to intervene in
the foreign exchange market are intended to make Swiss franc investments less attractive,
thereby easing pressure on the currency. The Swiss franc is still significantly overvalued.
Compared to September, the new conditional inflation forecast has been revised slightly
downwards in the short term. This mainly reflects the fact that inflation in October and
November was somewhat lower than expected. However, our expectations for the
mediumterm development of inflation remain essentially unchanged.
We continue to anticipate an inflation rate of -0.4% for the current year. For 2017, the
inflation forecast is down to 0.1%, from 0.2% in the previous quarter. For 2018, we now
expect inflation of 0.5%, compared to 0.6% in the third quarter. The conditional inflation
forecast is based on the assumption that the three-month Libor remains at -0.75% over the
entire forecast horizon.
Global economic outlook
I would now like to turn to economic developments abroad, as these have a considerable
bearing on the inflation and economic outlook in Switzerland.
Since the last monetary policy assessment in September, the global economy has developed in
line with our expectations. It has continued to recover and capacity utilisation in many
countries is improving gradually. This is especially evident in the labour market, where job
numbers are on the rise and unemployment is declining. However, global economic growth is
moderate and not yet broad-based. International trade and demand for investment in particular
continue to be subdued. Inflationary pressure abroad also remains low. Although higher
energy prices are currently resulting in a marked increase in inflation, core inflation remains
at a low level in a number of countries and central banks are thus maintaining their
expansionary monetary policy course.
Among advanced economies, the economic cycle has progressed furthest in the US.
Thirdquarter GDP growth in the US was again significantly above potential. Private consumption
was once more the driving force. The situation on the labour market continued to improve as
well; the US economy has now almost reached full employment. This is also reflected in more
robust real wage growth. Inflation is now close to the target set by the US Federal Reserve.
Against this backdrop, the Federal Reserve decided yesterday to raise its key interest rate by
25 basis points. This move is confirmation that - in the Federal Reserve's view - the world's
largest economy is gradually emerging from a protracted period of crisis.
The other major economic areas also recorded favourable economic activity in the third
quarter. The euro area and Japan continued to register moderate growth, while in China,
growth remained strong thanks to a variety of fiscal measures. In the UK, the economic
impact of the Brexit decision has so far proved less pronounced than originally feared.
However, the country's economic performance is still expected to be impaired by this
outcome in the coming quarters.
Our assessment of international economic developments over the next few quarters has
remained largely unchanged since September. The SNB expects the moderate pace of global
growth to continue in 2017. It is thus likely that the economic situation will continue to
improve, particularly in the euro area, and that inflation will also pick up somewhat.
Our baseline scenario for the global economy is still subject to considerable risks, however.
Structural problems in a number of advanced economies - such as a fragile financial system,
high public debt and low growth potential - could negatively affect the outlook. Added to this
are a multitude of political uncertainties. First, it is unclear what direction economic policy in
the US will take following the presidential election. Second, several countries in the euro area
have important elections coming up in 2017. And third, exit negotiations between the UK and
the EU are likely to be complex and arduous.
Swiss economic outlook
I shall now turn to the economic outlook for Switzerland.
According to an initial quarterly estimate, GDP in Switzerland grew at an annualised rate of
0.2% in the third quarter. This small increase must also be seen in the context of high growth
in the second quarter. Year-on-year, GDP rose by 1.3% in the third quarter.
Initial quarterly estimates of the national accounts are uncertain by definition. The SNB
therefore takes a wide range of additional information into account when assessing the
economic situation. Available indicators suggest that there has been a gradual recovery since
mid-2015, which continued in the second half of 2016. A key factor here is improved
business and household sentiment in the euro area and other advanced economies, which in
turn creates a more favourable environment for the Swiss export industry. Overall, the signals
from the economic indicators are consistent with our previous GDP growth forecast of around
1.5% for 2016 as a whole.
Developments on the labour market support this view. Employment statistics show that the
number of jobs in Switzerland grew in the third quarter, too. Up until November, the
seasonally adjusted unemployment rate for this year was stable at 3.3%.
The outlook for the coming year is cautiously optimistic. Over the course of 2017, export
demand looks set to gradually strengthen further. For the export industry, this will mean better
capacity utilisation and less pressure on margins. We are also expecting a gradual recovery on
the labour market. Various surveys confirm this assessment. Together with our continued
expansionary monetary policy, labour market developments should boost domestic demand.
Private consumption, too, is likely to once again make a greater contribution to economic
growth. Overall, as for 2016, the SNB expects GDP growth for 2017 to be roughly 1.5%.
However, the Swiss economy will also face some major challenges in the coming year.
Structural change continues to affect several important industries. Retailing is having to
contend with changes both to distribution channels and the spending habits of households.
The financial sector will have to push ahead with regulatory adjustments and manage the
transition to new business models, while in manufacturing, digitalisation is going to be a
particular focus of attention. Our country's future welfare depends critically on how well we
master these challenges.
I will now review changes to monetary conditions since the middle of the year.
The last half year has been shaped by the surprising outcomes of a number of political events.
The Brexit decision led to a significant devaluation of the pound sterling and generated
upward pressure on safe-haven currencies. Thanks to our willingness to intervene in the
foreign exchange market, we were able to cushion the effect of the additional pressure on the
Swiss franc, which can often build up in such phases of increased market volatility. Equally,
neither the US elections nor the Italian constitutional referendum caused any significant
changes in the value of the franc overall.
On a trade-weighted basis, the real external value of the franc hardly changed over the course
of the year. An analysis of nominal exchange rates since our last assessment in June shows
that the franc has appreciated slightly against the euro. Against the dollar, meanwhile, it has
depreciated somewhat.
One reason for the appreciation of the US dollar against the Swiss franc and most other
currencies is the substantial increase in long-term interest rates in the US, particularly
following the presidential election. Long-term yields on Swiss Confederation bonds have also
risen, but yield increases have been less pronounced here than in the US. The interest rate
differential with the US has thus widened. Short-term rates in Switzerland are virtually
unchanged, with the yield curve steepening as a result.
Inflation expectations in Switzerland remain stable. Most households, companies and
financial analysts anticipate that inflation will be slightly positive in the short to medium
term. This view is substantiated in the surveys conducted by the SNB's delegates for regional
economic relations. Despite weak inflation in recent years, long-term inflation expectations
have changed very little and remain firmly anchored in the range which we equate with price
stability.
Monetary policy outlook
Ladies and gentlemen, let me summarise my key points. Even in times of turbulence such as
those witnessed in the last six months, our monetary policy has proved its worth. The negative
interest rate has partially restored the traditional interest rate differential with other currencies
and has thus made Swiss franc investments less attractive. During periods of high volatility,
our willingness to intervene in the foreign exchange market has a stabilising effect on the
exchange rate. The two elements on which our monetary policy is based - the negative
interest rate and our willingness to intervene - are both helping to reduce pressure on the
Swiss franc. Thus, despite periods of heightened uncertainty over the last few months, the
franc has remained quite stable overall. Furthermore, the negative interest rate has led to
lower interest on the capital market, which is facilitating corporate financing.
In other words, our expansionary monetary policy is effective. The negative interest rate and
our willingness to intervene in the foreign exchange market continue to be both necessary and
appropriate. This is because inflation is still very low, production capacity is not yet being
fully utilised and the Swiss franc continues to be significantly overvalued. Our monetary
policy stabilises price developments and supports economic activity in Switzerland.
Ladies and gentlemen, thank you for your attention. It is now my pleasure to give the floor to
Fritz Zurbrügg, who will speak about current developments in the area of financial stability.