SNB’s Fight to Tame Inflation Not Yet Done, Central Bank Chief Says

There’s more work to be done to tame inflation in Switzerland, according to the country’s central bank chief.

(Bloomberg) — There’s more work to be done to tame inflation in Switzerland, according to the country’s central bank chief.

“The fight against inflation is not over yet — we need to make sure we bring it back below 2% in the long term,” Swiss National Bank President Thomas Jordan told SonntagsZeitung in an interview. “At this point in time, we can’t exclude a further tightening of monetary policy.”

Speaking less than two weeks before the SNB sets rates at its quarterly meeting, the central banker highlighted that “we still have an environment where inflation is too high and there are relatively widespread price increases.”

After raising borrowing costs by 225 basis points since June 2022, the SNB is widely predicted to hike interest rates again on June 22. What happens after that is unclear as Swiss inflation — already among the lowest of any developed economy — has been slowing toward the top of the central bank’s target range.

One element that may drive consumer-price growth again is Swiss housing: A recent increase in the national benchmark for mortgage costs — triggered by the SNB’s rate hikes — sets up thousands of tenants for rent increases. Asked about that fallout from tightening, Jordan defended the central bank’s moves.

“This isn’t a new phenomenon,” he said. “But we can’t allow this to stop us fighting inflation. Because then inflation would only accelerate even more, and we would — with a time lag — have to raise rates even more,” Jordan said. “Everything speaks for fighting inflation as early as possible.”

The SNB chief also told SonntagsZeitung:

  • The SNB has already allowed the franc to rise, but “we don’t want the franc to appreciate too much.”
  • The SNB has reduced its balance sheet and will do so again if it “makes sense for monetary policy reasons.”
    • “Our balance sheet is not the biggest risk for Switzerland. Exactly the opposite is the case: With our balance sheet, we have shielded Switzerland from fundamental risks.”
  • Swiss banks need to keep an eye on mortgages and the property market, but there’s no need for SNB action as the so-called anti-cyclical capital buffer already is at its top setting.
  • The interest on sight deposits is necessary so that the SNB policy rate prevails in the market and is passed through to the economy.

Jordan also weighed in on the UBS-Credit Suisse deal in the interview, largely reiterating points that government officials and regulators have said previously. He told the paper:

  • “I’m sure if the takeover by UBS had not succeeded, it would have become an international financial crisis” and that “human error played a big part” in the demise of Credit Suisse.
  • The notion that the SNB could provide unconditional liquidity guarantees for Credit Suisse “completely misjudges” its role and the situation in Switzerland, he said.
  • Lessons need to be drawn from the CS debacle, and one is that “we will certainly have to reconsider how much capital is needed and in what form” from large institutions.

–With assistance from Bastian Benrath and Hugo Miller.

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