SNB Can Cut Rates Again, Intervene in FX Markets, Schlegel Says

This content was published on October 1, 2024 - 18:39

2 minutes

(Bloomberg) — The Swiss National Bank can intervene in currency markets if required and stands ready to lower interest rates again, according to new President Martin Schlegel.

“Our main instrument is the policy rate — but we’re not excluding to be active on FX markets,” he said in his first speech as SNB chief on Tuesday.

The central bank last Thursday reduced borrowing costs for a third straight meeting and signaled that more easing may follow. While not pre-committing to further cuts, Schlegel had told Bloomberg Television that such moves are “likely.”

Speaking in Bellinzona in southern Switzerland, Schlegel highlighted that SNB policymakers “will continue to ease monetary policy if necessary to maintain price stability in the medium term.”

Meanwhile, the franc has been rallying and some analysts believe it may reach the strongest level in almost a decade.

Schlegel said that the “for the competitiveness of Switzerland the real exchange rate is relevant, not the nominal one.”

Besides, anecdotal evidence suggests dealing with the strong currency makes Swiss companies better at their work, he said.

“A company has recently told me that the strong franc is inconvenient in the short run, but it also always pushes them to become more efficient,” Schlegel said.

With one of the world’s lowest rates, the SNB has to strike a balance between low consumer-price growth and a strong currency on one side, and limited easing space on the other. Inflation was just 1.1% in August and some economists worry it might undershoot the SNB’s target range of 0% to 2%.

“All in all we judge downward risks to Swiss inflation as bigger than upward risks,” Schlegel said.

The SNB chief also highlighted that “negative interest rates can’t be excluded.”

His institution’s most recent rate cut has brought the key rate to 1% — the equivalent of four standard-sized moves away from zero. A reduction below that level would mark a return to the policy stance embraced by officials between 2015 and 2022.

Tuesday marks the first day of Schlegel at the helm of the SNB, succeeding long-term chief Thomas Jordan, whose term ended on Sept. 30. Schlegel, who has been at the central bank for two decades — most recently as vice president — is widely seen as a choice for continuity.