samchain/econo-pairs-v1 huggingface dataset:
Since mid-January this year, the SNB’s monetary policy has been based on two complementary pillars: The negative interest rate and our willingness to intervene on the foreign exchange market as required. These instruments are proving effective at countering excessive pressure on the exchange rate, thereby ensuring price stability in the medium term. However, I would like to stress that, at current levels, the Swiss franc remains significantly overvalued. With an interest rate of –0.75% on sight deposits, we have gone far compared to most other countries. We have observed that money and capital markets are functioning smoothly under the negative interest rate. However, mortgage rates have not fallen to the same extent as interest rates on money and capital markets. Hence, fears that the negative interest rate  3  Jordan, T. (2015) “The impact of international spillovers on inflation dynamics and independent monetary policy: the Swiss experience”, conference paper prepared for the 39th Economic Symposium on ‘Inflation Dynamics and Monetary Policy’ in Jackson Hole, 28 August 2015. BIS central bankers’ speeches  5  could contribute to imbalances on the mortgage and real estate markets have so far proved unfounded. Finally, economic conditions remain challenging in Switzerland. The SNB monitors the situation continuously, and our latest analysis and forecast will be published at the next monetary policy assessment on 10 December. In general, we believe that the economy has returned to a moderate path of recovery, although significant downside risks remain. These originate, in particular, from the fragile international environment and exchange rate developments.

Andréa M Maechler: Monetary policy in 2015 – a first assessment Speech by Ms Andréa M Maechler, Member of the Governing Board of the Swiss National Bank, at the Money Market Event, Geneva, 19 November 2015. *  *  *  Accompanying slides can be found at the end of the speech and on the Swiss National Bank’s website. The speaker would like to thank Dirk Faltin, Marco Huwiler and Bettina Simioni for their valuable support in preparing this speech. She is also grateful to Vincent Crettol and Peter Kuster for helpful comments and SNB Language Services for their assistance. Ladies and gentlemen It is my great pleasure to welcome you tonight to our traditional Money Market Event. I feel very honoured to be here in Geneva, the city of my birth, giving my first public speech for the Swiss National Bank (SNB), having joined the Governing Board in July this year. It has been a very eventful year for monetary policy in Switzerland. In January, the SNB took two momentous decisions: It discontinued the minimum exchange rate against the euro, and lowered the interest rate on sight deposits further into negative territory. Thus, the SNB’s monetary policy has changed significantly. Tonight, I shall provide a first assessment of this new monetary policy environment. My speech is divided into three parts. First, I shall discuss the SNB’s monetary policy since the discontinuation of the minimum exchange rate, and the impact on the Swiss franc exchange rate.
The authorities in many countries are working to enhance financial market resilience. Three changes are particularly relevant for the Norwegian banking sector: First, for a given risk assessment, capital requirements must be higher. Second, banks must not be allowed to reduce capital below a minimum level even if they extend loans that, according to models, seemingly involve low risk. Third, banks must build up strong capital buffers over and above the minimum requirement in normal times. Then banks would not have to increase capital when the turnaround occurred. On the contrary, they would be able to absorb losses, thereby avoiding the need to ration credit in bad times. Norwegian banks do not have sufficient buffers today to safeguard their own, their shareholders’ or the economy’s best interests. That is why the government is now supplying risk capital. There should be no doubt that banks have the capital they need. In addition, banks’ funding methods make them vulnerable. Earlier, Norwegian banks primarily obtained funds through deposits by households and enterprises. In recent years, banks have borrowed heavily in both domestic and foreign markets. During the crisis, this proved to involve high liquidity risk for banks. Long-term credit markets have now dried up. The government and Norges Bank have therefore taken on the role of lender. In the future, in regulations and in practice, deposits must again take precedence as the largest source of funding for banks. Bonds collateralised by high quality mortgages, so-called cover bonds, will probably also be important.

The true value of the bond portfolio will, at the very latest, be realised when the loans are repaid. More than 90 percent of the fixed income portfolio is rated A or better. Even though rating agencies do not always prove to have the best evaluations, this still illustrates our conservative investment strategy. The Fund is a long-term savings plan and capable of riding out large swings in the markets. This is the very foundation of the investment strategy with its high allocation to equities. Our ability to adhere to this strategy in a critical phase – even if this should persist for some time – is crucial if the Fund is to deliver the returns we expect in the longer term. We need to attach importance to the real value of equity investments and safeguard assets by spreading the Fund’s investments. Norges Bank therefore supports the strategy that the government has chosen for the Fund. Under the Fund’s strategy, more equities will be bought when equity prices fall and fewer when they rise. The Fund therefore purchased a large volume of equities from 2001 to 2003 and is buying a considerable volume now. Of the equities now owned by the Fund, 40 per cent were purchased last year when prices were moving down. As a result, ownership in the business sector in the US, Europe and Asia has increased – in companies’ human capital, in their machinery and equipment, brands and organisation.
In the first Inflation Report of 2006, it was foreseen that though the falling inflation process would enter a stagnation period in the first quarter of the year, it would follow a downward tendency as of the second quarter of the year, unless an unfavorable exogenous development happened. While the  16  BIS Review 67/2006  reduction of VAT in the textile, ready-made clothing and leather sectors to 8 percent from 18 percent in March was a development that reinforced the forecast that inflation would re-enter a downward tendency in the second quarter of the year, rapid increases in oil prices in the recent period forewarned that the said forecast should be handled cautiously. While producing forecasts, this information was also added in the framework of the short-term outlook. Besides, the price dynamics in services sector, mainly the rent sub-item, continue to play a critical role with respect to achieving the year-end inflation target. Though the contribution of the rises in the rent sub-item to 2006 inflation is forecasted to be about one point, a scenario, in which this periodic pressure on CPI inflation will decreasingly persist throughout 2007, is considered. Forecasts relating to fundamental macro variables of the Euro zone, such as interest rates, inflation and growth, analyses concerning international commodity prices and the likely course of global liquidity conditions comprise our assumptions of the external world that constitute the basis for our forecasts.

Financial risk management – though always core to the Bank’s thinking – was not a particularly complex or resource-intensive activity. 1  For more on this issue, see for example ‘Central bank financial strength, transparency and policy credibility’ by Peter Stella (IMF Staff Papers, Vol. 52, No.2), available at https://www.imf.org/external/pubs/ft/wp/2002/wp02137.pdf and ‘Central bank finances’ by David Archer and Paul Moser-Boehm (BIS Papers, No.71), available at www.bis.org/publ/bppdf/bispap71.htm. 2 See page 31 of the Bank of England Report and Accounts 1985 (http://www.bankofengland.co.uk/archive/Documents/historicpubs/ar/1985accounts.pdf) and Balluck, K, Galiay A, Ferrara, G and Hoggarth, G (2016), ‘The small bank failures of the early 1990s’ (http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2016/q1/a5.pdf). 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Chart 2: Bank of England balance sheet  Chart 3: Federal Reserve and Bank of England balance sheets compared  Percentage of annual nominal GDP(a) 30  30  Percentage of annual nominal GDP  30  World War II  World War I  25  25 25  20  US Federal Reserve (b)  25  20 20  15  15  10  10  5 0 1830  30  1860  1890  1920  1950  1980  2010  Sources: Bank of England, ONS (a) Data as at February. Final data point shows the latest published balance sheet data, at 29 February 2016, plus the increase in the loan to the Asset Purchase Facility since this time. Excludes TARGET balances held at the Bank by European central banks in 1999-2001.
The main scenario in the Inflation Report that is published today does not represent a future development of inflation that threatens price stability. But every inflation forecast contains an element of uncertainty and the risk spectrum also has to be considered when formulating monetary policy. The present Report concludes that higher inflation compared with the main scenario is more probable than lower inflation. Remember, moreover, that to be most effective, monetary policy has to focus on the situation one to two years ahead. This suggests that the Riksbank is moving towards a situation in which the repo rate will be raised. Yesterday, however, the Executive Board decided in favour of an unchanged repo rate. But sooner or later, if developments continue along the lines in the present assessment, a repo rate increase will be called for. If some kind of international shock with a probable downward effect were to occur, or if indications of more subdued economic activity or prices were to be observed, that would naturally be taken into account in our future assessments. Why a higher repo rate? A repo rate of 2.90% is probably too low over a complete business cycle, even in an economy where inflation expectations have settled down around the targeted rate of 2%. Under such circumstances, the direction of monetary policy can be described as expansionary. This is not countered by a restrictive fiscal policy.

There is therefore little time to spare, in the run up to a revival of the sukuk market and the lead time it takes to promulgate tax exemption rules for Islamic finance transactions; financial market players in Hong Kong must gear themselves up to embrace the change coming your way. Secondly, there is in general a greater awareness of Islamic finance within the local financial community, particularly among banks. Banks in Hong Kong are in the position of being both investors in, and suppliers of Islamic finance products. Instruments, ranging from retail  BIS Review 19/2009  3  Islamic investment funds and Islamic treasury placements at the interbank and corporate level, to Islamic loan syndication, have started to emerge in Hong Kong within the past year. Financial market participants have also set up Islamic banking windows here to signal their readiness to cater for these types of activities. But even with all the significant developments achieved here in such a short period of time, more still needs to be done. While the recognition of Islamic finance as a viable fund-raising and investment alternative is gradually making its way to the corporate sector in Hong Kong, the pace of development is still rather slow. Furthermore, this market awareness should also be promoted beyond banks and other types of financial institutions to all related service industries, such as investment managers, asset managers, securities and brokerage houses, exchanges and commodity firms, pension funds, insurance agencies, solicitors, accountants, and trustees.
8  BIS central bankers’ speeches  Table 2 Economic growth and current account (annual change, percent) 2011  Dec.12 Report  2012 (e)  Mar.13 Report  Dec.12 Report  2013 (f)  Mar.13 Report  GDP  5.9  5.5  5.6  4.25-5.25  4.5-5.5  Domestic demand  9.1  6.6  7.1  5.7  6.1  Domestic demand (w/o inventory change)  9.4  6.8  7.3  6.0  6.1  Gross fixed capital formation  14.7  11.3  12.3  7.6  7.2  Total consumption  7.9  5.3  5.8  5.5  5.7  Goods and services exports  5.2  2.7  1.0  3.0  3.1  Goods and services imports  14.5  5.5  4.9  5.9  5.9  Current account (% of GDP)  -1.3  -3.8  -3.5  -4.6  -4.4  (e) Estimate. (f) Forecast, Source: Central Bank of Chile.

9  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  9  accounts (NS&I), and retail funds. Second, however, there are many affected areas of consumption for which there are no perfect (or even very good) substitutes. And as far as the dynamics are concerned, movements in infection rates have been extremely rapid – in Chart 5(b) we’re definitely in the red corner rather than the blue. This may have contributed to the drop in aggregate spending we saw in the second quarter of last year. If you anticipate that the worst will soon be over, and that the conditions for consumption will soon improve, you’re much more likely to delay some of it. Switching there may have been, but aggregate spending still declined and the saving rate still jumped (Chart 7). Third, and equally, the rapid dynamics are evident in both directions. Total consumption fell sharply in the spring, spending on risky activities even more so. But they both came back pretty smartly in the summer – much faster than in any normal cyclical upswing – as infection rates declined and lockdown was lifted. The jump in the saving rate in the second quarter was easily the largest rise on record in the (near) 60-year quarterly series. The drop in Q3 was also the largest fall on record. On average, in the UK data, the “halflife” of deviations in the saving rate – the time it takes to retrace half of any change – is over a year.
Today, I wish to reiterate that same key message even more strongly in light of the risks I highlighted. Looking forward, income can be increased in the short term through higher wages and fiscal stimulus to augment purchasing powers, especially when price pressure is high. But, over the medium term, the mix of macroeconomic policies needs to maintain focus on helping economic players to adopt better risk management, deal with market excesses, and reduce distortions in the economy. Over the longer term, increases in wages and employment can be sustained only by the growth of productivity that in turn improves the economy’s competitiveness. BIS Review 54/2008  3  For the Thai economy to compete successfully and grow robustly over the medium term, I like to echo the Finance Minister’s key message in the recent New York Roadshow. That is policies need to focus on the investment in infrastructure and embark on further structural reforms. The government investment plans for 2008-2012, as they are, will address the entire spectrum of infrastructure deficiency our economy faces. Moreover, the modernization of public transportation, housing and water resource management, as well as health and education spending should translate into better private sector return from cost reduction and productivity increase. In parallel with building modern infrastructure has to be the development of skilled human resources. Similar to elsewhere in the world, the labor quality shortage is also a key problem in Thailand. Here, skills produced through formal schooling are found to be different from those which firms find useful.

The tighter the labour market is, the higher wage growth will be. Demand for goods and services determines to a great extent how tight the labour market will be. High levels of private and public consumption, investment and exports will sustain the demand for labour. When the supply of labour is limited, the competition for labour pushes up wages. A tight monetary policy stance with a high real interest rate will curb domestic demand. In many countries, low and stable consumer price inflation is the goal of monetary policy. Consequently, we can assume that imported price inflation will remain subdued. However, price inflation will nonetheless vary in pace with global economic developments. The krone exchange rate also plays an important role in determining import prices. A strong krone exchange rate will curb prices for imported goods, while a weak krone exchange rate will result in higher prices. When there is a rise in the interest rate in Norway and a widening differential between domestic and foreign interest rates, investments in NOK will increase, and the krone exchange rate will rise. Price inflation may vary considerably from month to month. This variation may be due to random or temporary conditions, such as fluctuations in electricity prices or petrol prices, or the effects of changes in real taxes. When we assess the interest rate, we disregard these effects. Statistics Norway has constructed an indicator for adjusted price inflation - CPI-ATE - which is the measure we use to examine the results of monetary policy performance.
It is vital that the politicians now stick to their previous commitments and do whatever else is needed to restore market confidence. To limit potential adverse spill-overs, the ESRB has also discussed how to improve the resilience of the EU financial system. The ESRB has highlighted the importance of the stress tests performed by the EBA, the European Banking Supervisors – not least as a way to improve the transparency of the financial system. The ESRB has therefore called on the competent authorities in the EU and its Member States to contribute to clear and rigorous assessments of the banks involved. It has also called for national private or public back-stops to be put in place to deal with the potential need for bank capital. Last week, the ESRB sharpened this message asking supervisors to coordinate efforts to strengthen bank capital. I find the stress-testing to be a very useful exercise. I also believe that the disclosure of relevant data is an important tool for building market confidence, reducing uncertainty and promoting financial stability. However, there is still room for improvement. No doubt the macro-scenario could have been more conservative and possible contagion between banks and countries could have been handled better. The ESRB will have an important role to play in the construction of future stress tests. Bank funding vulnerabilities In June, the ESRB also pointed out that bank funding vulnerabilities could pose a threat to financial stability.

  Firstly, there is the federal approach, where you allow for a full delegation of powers to the EU level, including regulation, supervision and crisis management (Figure 2).   Secondly, you can abandon the idea of the internal market and return to a system with full national control of domestic financial systems (Figure 3). Figure 2  Figure 3  The de Laroisière group opted for a third way – the middle way – to reform the EU financial system. In terms of the financial trilemma, this means keeping financial integration and, at the same time, trying to find a reasonable compromise between financial stability and national sovereignty (Figure 4). Somewhat stronger cooperation, but still resting on national sovereignty. Figure 4 Financial stability  Financial integration  National sovereignty  Given the present European crisis, you may well ask whether this is a possible compromise or whether it will be just another damp squib. Only time will tell. But within this concept, there is room to move towards stronger European cooperation. The EU’s new supervisory structure The de Laroisière proposal rested on two major institutional pillars. The first related to the previous “level 3” committees, which were to be strengthened, transformed into authorities,  2  BIS central bankers’ speeches  and given as much power as possible without having to change the European Treaty.
However, in addition to imperfect rules and policy actions, the crisis has revealed a series of institutional deficiencies which need to be eliminated in order to restore economic and financial stability. The clearest example in this regard is probably the European institutional framework. Over the last three years we have witnessed how the perception of country risks has climbed to very high levels as a consequence of both sovereign credit risk as well as the so-called redenomination risk. This development has impeded the adequate functioning of monetary union by leading to sizeable differences in the financing conditions for agents located in different States within the monetary union and by instigating the renationalisation of financial markets. There can be no doubt that much of what has happened is directly linked to the significant macroeconomic and financial imbalances accumulated by several euro area countries, as well as to the emergence of vulnerabilities within the financial sector. It is also clear that the main remedy for those destabilising developments lies in effective adjustment of domestic policies, which is currently being implemented in those countries suffering the most significant stress. But, at the same time, the elimination of any perception of redenomination risks can only be fully accomplished if – in addition to the required domestic policy action – the central bank is fully and credibly committed to intervening in sovereign markets as far as is necessary to avoid the pricing of sovereign risk becoming self-fulfilling.

In that regard, the recent announcement by the European Central Bank of its determination to conduct unlimited intervention in the sovereign secondary markets, provided effective conditionality is fulfilled, constitutes a significant step towards the normalisation of market conditions in the euro area. Yet, the return to a smoothly operating monetary union cannot be completely achieved by simply relying on ad-hoc reactions by policy-makers. Institutional arrangements must be reviewed in order to restore adequate incentives for domestic authorities to prevent the reemergence of destabilising imbalances and to ensure that any residual risks arising in specific jurisdictions that could affect the area as a whole would be addressed by integrated mechanisms operating at the euro area level. The recent changes introduced in the European Union to strengthen the requirements and the mechanism for the surveillance of domestic fiscal policies and structural reforms, together with the creation of the EFSF and the ESM – which we now know will be soon be launched – are good examples of the required institutional reforms. BIS central bankers’ speeches  1  At the same time, a specific source of risks for the smooth functioning of monetary union that needs to be addressed directly is the financial instability experienced in specific jurisdictions.