SNB Won’t Avoid Intervention Because of Trump, Schlegel Says

(Bloomberg) — The Swiss National Bank’s actions in the currency market were previously successful and officials won’t shirk from resorting to that tool again if needed, according to President Martin Schlegel. 

Switzerland’s central bank chief, speaking to Bloomberg Television in Davos on Wednesday, also reiterated his position that policymakers will also return borrowing costs to below zero again if circumstances require it. 

“FX interventions have worked in the past,” he told Jonathan Ferro during his visit to the World Economic Forum. “We are, if necessary, willing to use them again.”

Large-scale interventions by Switzerland previously led to the country being branded a foreign-exchange manipulator by the US Treasury when Donald Trump was last in power. Resorting aggressively to the tool could risk such classification again under his new administration, but the threat of that doesn’t bother Schlegel.

“Our mandate is price stability in Switzerland, and for this we use the interest rate and exchange rate,” he said. “Our guideline is our mandate, and this is enshrined in the law.”

The franc retreated against the euro but gained against the dollar on Schlegel’s comments. The currency traded at 0.9447 per euro and 0.9052 per dollar at 12:45 p.m. in London. 

For now, SNB officials are leaning more on their borrowing costs tool. Six weeks ago, they slashed their rate to just 0.5% in the biggest cut in almost a decade. The move sought to contain the strength of the franc, which is pushing Swiss inflation so far down that it could undershoot the policymakers’ zero-to-2% target range. 

Schlegel, who insisted he’s “not uncomfortable” with the current level of consumer-price growth, at 0.6% in December, repeated his line from last month that the SNB doesn’t like negative rates but will use them again if they have to. The central bank deployed that measure of subzero borrowing costs for almost eight years until 2022. 

Former SNB President Philipp Hildebrand warned on Monday that the global inflation surge might not be entirely over. He expects Swiss policymakers to use all tools at their disposal, including currency interventions, to deliver on their mandate. A strong franc typically shields the economy against imported inflation from abroad, while a weaker currency fosters domestic price growth.

Over the first nine months of last year, the SNB has essentially held off from any interventions. Data on the fourth quarter will be released in March.

Schlegel also said that the SNB isn’t considering a new cap on the franc. 

“This is not something that we are discussing,” he said, speaking almost exactly 10 years after the central bank triggered chaos on financial markets by scrapping its limit on the exchange rate.

As an official responsible for markets, Schlegel was on the SNB’s trading floor at the time. 

“I will remember that day for all my life,” he said.

In a separate interview with newspaper group CH Media, Schlegel said that since the SNB started to reduce rates, price dynamics in Switzerland’s real estate market are picking up again. He reiterated an earlier warning that there is a risk of corrections.

“We can really say that the prices we are now seeing in the real estate market cannot be explained by fundamental factors,” he said.

(Updates with real estate comments starting in penultimate paragraph.)

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