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SNB keeps expansive monetary policy to contend with COVID-19

The Swiss National Bank kept its policy interest rate locked at minus 0.75%, the world’s lowest, and said it remained willing to buy foreign currencies more strongly.


SNB Chairman Thomas Jordan said the central bank had made “considerable foreign exchange purchases this year,” but declined to give details on the level of interventions during the second half of the year.


The SNB said the interventions were necessary to relieve pressure on the franc, which has attracted safe-haven inflows during the crisis.


During the first half of 2020, it bought 90 billion Swiss francs ($101.94 billion) worth of foreign currencies, dwarfing the level of interventions in previous years.

Those interventions have brought the SNB into the line of sight of the U.S. Treasury, which labelled Switzerland a currency manipulator on Wednesday.


But Chairman Jordan was unrepentant, saying the measures were necessary to stem rising upward pressure on the franc.

“Just to be very clear. The U.S. treasury report has no impact on our monetary policy,” Jordan told reporters, rejecting the currency manipulator label.


“Our monetary policy is necessary and legitimate, in fact it’s the result of our mandate that we were given by the Swiss people and parliament to maintain price stability,” he said. “It is very important that we maintain this price stability in order to avoid a deflation in Switzerland.”


The SNB was in “constructive dialogue with our U.S. friends,” regarding the situation, he said, and had improved transparency. But there was a limit what the SNB could do to assuage the U.S. criticism, Jordan said.


Analysts expect the SNB to remain undeterred by U.S. pressure and plough ahead with currency purchases.


Jordan himself said they were the only option as the small size and illiquidity of the Swiss bond market meant a programme of quantitative easing in Switzerland wouldn’t work.


With all inflation rates negative and trade-weighted exchange rates higher than a year ago, we don’t think that the SNB should pursue a different strategy regarding the FX interventions than it currently does.

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