Thomas Jordan: Swiss National Bank's monetary policy decision and
assessment of the Swiss economic situation
Introductory remarks by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss
National Bank, at the Media News Conference of the Swiss National Bank, Berne,
1 December 2014.
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Ladies and gentlemen
Welcome to the Swiss National Bank's six-monthly news conference. I will begin by
explaining the Governing Board's monetary policy decision and outlining our assessment of
the economic situation. I will then hand over to my colleagues, Jean-Pierre Danthine and
Fritz Zurbrügg, who will comment on current developments in financial stability and the
financial markets. Thereafter, we will be happy to take your questions.
Monetary policy decision
I will begin with our monetary policy decision.
The Swiss National Bank (SNB) has decided to maintain the minimum exchange rate of
CHF 1.20 per euro. The target range for the three-month Libor remains at 0.0-0.25%.
Deflation risks have increased once again in recent months, and the Swiss franc is still high.
We will therefore continue to enforce the minimum exchange rate with the utmost
determination. If necessary, we are prepared to buy foreign currency in unlimited quantities
for this purpose. With interest rates at zero, the minimum exchange rate is the key instrument
to avoid an undesirable tightening of monetary conditions. This is especially important at the
moment, as upward pressure on the Swiss franc has intensified once again. Furthermore, we
will not hesitate to take further measures, should they prove necessary.
Our new conditional inflation forecast has been revised downwards once again. Above all,
the appreciably lower oil price will push inflation into negative territory during the next four
quarters. Moreover, the economic outlook for the euro area has deteriorated once more.
Together with persistently low inflation across the globe, this is dampening the medium and
long-term inflation outlook for Switzerland. For the current year, we have revised our forecast
downwards by 0.1 percentage points to 0.0%. For 2015, we are now even anticipating a
negative inflation rate of -0.1%, with inflation turning positive only in 2016, at 0.3%. This
constitutes a downward adjustment of 0.3 percentage points for 2015, and 0.2 percentage
points for 2016. These forecasts assume that the three-month Libor will remain at zero over
the entire forecast horizon, and that the Swiss franc will weaken. The revision of the inflation
forecast is a clear sign that deflation risks have increased once more.
Global economic outlook
The SNB's inflation forecast is embedded in a global economic scenario. Let me now discuss
our assessment of the global economy.
Global economic developments continue to be mixed. The US, UK and China all saw robust
growth in the third quarter. In the euro area and Japan, by contrast, it was weaker than
expected. In addition, inflation in the advanced economies was below central bank targets -
in some cases by a considerable margin. In the euro area, it is only just in positive territory.
The decline in commodity prices, above all crude oil, will curb inflation further over the short
term.
We continue to assume that global economic growth will gradually firm over the course of
next year. The considerable fall in oil prices should be a contributory factor. However, the
prospects for individual countries vary widely. For the US, we are expecting that growth will
remain robust over the next few quarters, leading to better utilisation of economic capacity.
For the euro area, by contrast, we have revised the growth forecast downwards once more,
and the outlook for this region remains very subdued. The picture for the emerging
economies is mixed. China will continue to be a driver of the global economy, although it is
likely to see a gradual weakening of growth. For India, growth prospects are picking up
again. The outlook for Brazil and Russia, by contrast, remains muted.
Overall, the global economic outlook is still very uncertain and dominated by downside risks
- the most important of which are the continuing difficult conditions in the euro area and a
possible escalation in geopolitical tensions.
Swiss economic outlook
I will now look at economic developments in Switzerland.
Following a weak second quarter, real GDP growth was unexpectedly favourable in the third.
On the demand side, the increase was supported predominantly by goods exports, with
manufacturing the main beneficiary of the strong export demand. However, private and
public consumption also picked up, after having registered only lacklustre growth in the first
half of the year. Momentum in equipment investment, by contrast, remained weak. In part,
growth was also boosted by special factors, including an unusually large increase in value
added in the healthcare industry. Despite the positive developments of the third quarter,
utilisation of economic capacity remains unsatisfactory.
We are assuming that growth will be markedly lower in the fourth quarter. In particular, export
demand and value added in manufacturing are likely to contribute significantly less to growth
than in the previous quarter. As a result of the comprehensive revision of the national
accounts, the reported figures for previous quarters are higher, and therefore GDP growth for
the current year should also be somewhat higher than we assumed in September, by 1.5-
2%. However, the underlying economic momentum has not changed. For next year we
expect to see GDP growth of about 2%. Under this assumption, the underutilisation of
economic capacity will decline only gradually. We are also expecting only a modest recovery
on the labour market.
Monetary and financial conditions
I will now turn to monetary and financial conditions.
After a long period in negative territory, inflation has been hovering around zero for over a
year. The minimum exchange rate has prevented deflationary developments, but inflation still
lies towards the bottom of the range that we equate with price stability. Moreover, according
to the available surveys, medium-term inflation expectations have fallen steadily in recent
years. Yet, at around 1%, they are still close to the long-term average inflation rate.
Interest rates, too, have remained very low across all maturities in the past few quarters.
Mortgage rates have declined further, reaching a new low in October. Government bond
rates have also fallen to new lows. My colleague, Fritz Zurbrügg, will discuss developments
on the financial markets in more detail.
Despite falling mortgage rates, mortgage lending growth slowed again. At the same time,
real estate prices continued to rise. However, as in 2013, price momentum is weaker than in
previous years. This suggests that the measures to contain developments on the mortgage
and real estate markets are starting to have an impact. Yet the imbalances that have built up
on these markets in recent years remain the same. It is still too early for an all-clear. The
SNB will continue to monitor the situation closely. My colleague Jean-Pierre Danthine will
discuss this topic in more detail in his presentation.
Since the last monetary policy assessment, the Swiss franc has moved closer to the
minimum exchange rate, and has thus strengthened against the euro once again. At the
same time, both it and the euro have depreciated against the US dollar. Overall, the
exportweighted real external value of the Swiss franc is virtually unchanged compared to last year,
and thus continues to lie considerably above its long-term average. The Swiss franc is still
high.
In view of the elevated deflation risks, the minimum exchange rate remains the key
instrument for ensuring appropriate monetary conditions. A further appreciation of the Swiss
franc would have a major impact on wages and prices, and would push inflation well into
negative territory. Companies in Switzerland would once again be forced into drastic price
cuts, in order to remain competitive. In such a scenario, price stability would be seriously
compromised. The minimum exchange rate helps to reduce such deflation risks.
SNB monetary policy
Let me close with a few additional explanations of SNB monetary policy.
On 30 November, the Swiss voters rejected the gold initiative. The initiative demanded that
the SNB hold at least 20% of its assets in gold, that it sell no more gold and that it store all its
gold in Switzerland. We are relieved that the gold initiative has been rejected. As we have
pointed out on several occasions, had the initiative been accepted this would have seriously
impaired the implementation of a stability-oriented monetary policy. Let me just take this
opportunity to reiterate that, in an international comparison, the SNB's gold holdings are high.
Gold has always been, and will remain, an important component of our currency reserves
and we have no intention of selling gold.
In the prevailing international environment, the monetary policy challenges facing the SNB
remain considerable. The situation is still particularly difficult in the euro area. In order that
the SNB is able to fulfil its mandate - of ensuring price stability while taking due account of
economic developments - in the best possible way, it must make full use of its room for
manoeuvre in monetary policy. For this reason, the SNB will not hesitate to take further
measures to fulfil its mandate, should they prove necessary.
Ladies and gentlemen, thank you for your attention.