Without the foreign exchange market interventions of the Swiss National Bank (SNB), there would have been no price stability in the last 15 years, said SNB Vice-Chairman Martin Schlegel at a lecture in Geneva on Tuesday.
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Since the SNB began using the instrument during the financial crisis in 2009, inflation has averaged 0.3% annually, Schlegel said in his speech. “According to estimates, it would have been well below zero without the purchases.” This means that the SNB would have missed its target of keeping inflation in the 0% to 2% range.
The interplay between the key interest rate and interventions has always been important. In recent months a combination of interest rate hikes and currency sales has quickly brought inflation back into the price stability range. “Without the use of foreign currency sales, the SNB would have had to raise the key interest rate more sharply,” said Schlegel.
‘Profits are not our mandate’
However, he conceded that this instrument had side effects. For example, the SNB’s balance sheet had reached a record value of one trillion Swiss francs in 2022, which was almost one-and-a-half times Swiss GDP. And this in turn has led to greater fluctuations in the SNB’s annual result.
As a result, there has been no more recently distributions to the government and the cantons. In this context, Schlegel repeated the SNB’s mantra: “Our mandate is to ensure price stability, not to generate profits.” The SNB’s equity capital is currently too low and building this up must take priority over profit distributions, he said.
He also emphasised that the currency purchases had shifted the currency risks from the private sector to the SNB, mentioning that since 2009, Swiss companies and investors have increasingly brought their profits back to Switzerland from abroad and hedged their currency risks. This has increased the upward pressure on the Swiss franc: “The SNB has taken on some of these risks in order to ensure price stability,” says Schlegel.
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