Thomas Jordan: The rationale for discontinuing the minimum exchange
rate and lowering interest rates
Introductory remarks by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss
National Bank, at the press conference of the Swiss National Bank, Zurich, 15 January 2015.
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Ladies and gentlemen
Thank you for once again accepting our invitation to this press conference at such short
notice. Let me begin by explaining the rationale for discontinuing the minimum exchange rate
and lowering interest rates. Afterwards, I shall be happy to answer your questions.
Discontinuation of the minimum exchange rate
The Swiss National Bank (SNB) has decided to discontinue the minimum exchange rate of
CHF 1.20 per euro with immediate effect and to cease foreign currency purchases
associated with enforcing it.
The minimum exchange rate was introduced during a period of exceptional overvaluation of
the Swiss franc and an extremely high level of uncertainty on the financial markets. This
exceptional and temporary measure protected the Swiss economy from serious harm. While
the Swiss franc is still high, the overvaluation has decreased as a whole since the
introduction of the minimum exchange rate. The economy was able to take advantage of this
phase to adjust to the new situation.
Recently, divergences between the monetary policies of the major currency areas have
increased significantly - a trend that is likely to become even more pronounced. The euro
has depreciated substantially against the US dollar and this, in turn, has caused the Swiss
franc to weaken against the US dollar. In these circumstances, the SNB has concluded that
enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is
no longer justified.
Interest rate lowered
At the same time as discontinuing the minimum exchange rate, the SNB will be lowering the
interest rate for balances held on sight deposit accounts to -0.75% from 22 January. The
exemption thresholds remain unchanged. Further lowering the interest rate makes
Swissfranc investments considerably less attractive and will mitigate the effects of the decision to
discontinue the minimum exchange rate. The target range for the three-month Libor is being
lowered by 0.5 percentage points to between -1.25% and -0.25%.
Outlook for inflation and the economy
The inflation outlook for Switzerland is low. In December we presented a conditional inflation
forecast, which predicts inflation of -0.1% for this year. Since this forecast was published, the
oil price has once again fallen significantly, which will further dampen the inflation outlook for
a time. However, lower oil prices will stimulate growth globally, and this will influence
economic developments in Switzerland positively. Swiss franc exchange rate movements
also impact inflation and the economic situation.
The SNB remains committed to its mandate of ensuring medium-term price stability while
taking account of economic developments. In concluding, let me emphasise that the SNB will
continue to take account of the exchange rate situation in formulating its monetary policy in
future. If necessary, it will therefore remain active in the foreign exchange market to influence
monetary conditions.
Thank you very much for your attention. I will now be happy to answer your questions.