SNB Will Only Take Rates Negative If Necessary, Schlegel Says

(Bloomberg) — The Swiss National Bank will only reintroduce negative interest rates if necessary, President Martin Schlegel said as market expectations that borrowing costs will go below zero fade.

Schlegel stressed that all options are on the table and that the SNB is ready to revisit subzero rates, which it oversaw from 2014 to 2022. The key determinant is whether such a move is needed to keep inflation within the 0%-2% target band, he told Tages-Anzeiger in an interview published Saturday.

“Negative interest rates worked,” Schlegel said, echoing earlier remarks. “They fulfilled their most important purpose, namely to make the Swiss franc less attractive compared to other currencies and thus ensure price stability.”

Inflation currently stands at 0.4% and policymakers expect it to stay within target for the next three years. Markets are pricing one more rate cut this month and put the chance of another in June at about 50/50. That would leave the policy rate between 0% and 0.25% by mid-2025. As recently as December, investors had foreseen a negative number by then.

Schlegel, who took over the SNB in October, also described himself as a team player in determining policy. At the central bank’s last town-hall meeting, he invited all employees to address him on a first-name basis, he told the paper.

“All opinions should be voiced, regardless of position or function,” he said. “Only in this way we as the National Bank can ensure that we take all the various aspects into account and draw the right conclusions in our deliberations.”

Schlegel also said:

• The SNB expects Switzerland’s economy to grow between 1% and 1.5% this year. While services will likely do well, manufacturing is set to struggle from geopolitical risks and subdued demand from neighboring countries
• Changes in Swiss banking regulation are necessary:
• Banks should be required to prepare collateral to request a sufficient amount of emergency liquidity from the central bank
• The quality of equity should be improved with respect to foreign subsidiaries, proprietary software and deferred tax assets

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