thomas jordan : the swiss national bank ’ s monetary policy after the discontinuation of the minimum exchange rate speech by mr thomas jordan, chairman of the governing board of the swiss national bank, at the 107th ordinary general meeting of shareholders of the swiss national bank, berne, 24 april 2015. * * * mr president of the bank council dear shareholders dear guests, dear school students since 15 january, the swiss national bank ( snb ) has once again been coming to terms with a whole new set of challenges. on that day, the governing board decided to discontinue the minimum exchange rate because the international environment for the snb ’ s monetary policy had changed dramatically. the end of the minimum exchange rate of chf 1. 20 against the euro has far - reaching implications for our economy. it is therefore understandable that our decision triggered strong reactions. yet had we continued to maintain the minimum exchange rate for a certain period, the consequences for our country would have been much more severe. in my talk today, i would like to explain to you in detail our reasons for discontinuing the minimum exchange rate. the snb attaches great importance to clarifying its monetary policy decisions. this is, on the one hand, an important part of our statutory duty of accountability to parliament. on the other, it is a prime concern of ours that the general public and, in particular, you, our shareholders, should understand our monetary policy. i will begin by talking about the prominent issues related to the discontinuation of the minimum exchange rate. this will be followed by our present assessment of the swiss economy and price developments and an explanation of our current monetary policy. alongside our willingness to intervene on the foreign exchange market as necessary, negative interest on snb sight deposits plays an important role in monetary policy. i would therefore like to look at this subject in greater detail today. rationale for discontinuing the minimum exchange rate let us begin with the reasons for discontinuing the minimum exchange rate. in the course of 2014, there were growing signs that a us exit from a highly expansionary monetary policy was drawing closer. in the euro area, by contrast, there was increasing evidence that monetary policy would be eased further. against this backdrop, the euro depreciated considerably against the us dollar. these diverging monetary policy stances in the major currency areas affected the swiss franc in two different ways. like the euro, the swiss franc

rate as an exceptional and temporary measure. through the minimum exchange rate, the massive overvaluation of the swiss franc was partially corrected. in this way, the snb countered the acute threat to the swiss economy and the risk of a deflationary development. the minimum exchange rate served the swiss economy well. it helped to see it through the turmoil of that period and bought some time so that the economy could adjust to the new conditions, at least to some extent. production and employment recovered faster than in many other countries. over the past two years, gdp has grown by approximately 2 % on average. the swiss economy is now better placed than it was in 2011. new parameters for the economy : assessment and outlook what is our current assessment of the economic outlook, given the changed situation? before discontinuing the minimum exchange rate, the snb was expecting growth of some 2 % for this year as well. we now anticipate gdp growth of just under 1 %. with the end of the minimum exchange rate, switzerland faces more difficult times ahead. overall, the swiss franc is once again significantly overvalued. the sharp, and above all abrupt, appreciation of the swiss franc represents a major challenge. our economy has time and again demonstrated how adaptable and innovative it is, and it can certainly handle a gradual, longterm appreciation in the real exchange rate. however, the potential effects of the latest sharp swiss franc appreciation should certainly not be underestimated. we have great respect for the businesses and their staff who are now having to make challenging adjustments. at this time, the swiss economy must – more than ever before – build on its structural strengths and flexibility. doing so will enable it to preserve its international competitiveness and, with it, the prosperity of our country. apart from the exchange rate, future economic growth will depend on further developments in the global economy. in this respect, the outlook appears more favourable than in 2011. the us economy is in better shape. in the euro area, the latest economic figures also give cause for more optimism. nevertheless, considerable risks also exist now, with the ukraine conflict and the debt problems in greece. due to the new exchange rate parameters, the snb ’ s conditional inflation forecast has also moved down significantly. for 2015, we anticipate inflation of – 1. 1 % in switzerland. as the stronger swiss franc leads to a decrease in import prices. in addition, the very substantial fall