Swiss Inflation May Dip Below Zero Some Months, Schlegel Says

(Bloomberg) — Inflation in Switzerland is set to remain low this year and may slip below zero some months, according to Swiss National Bank President Martin Schlegel.

Schlegel said Monday that the “significant” half-point interest-rate cut the SNB made in December had brought inflation into the target range for the entire forecast period.

“This year, inflation will be relatively low, even near zero,” he told Swiss television channel SRF. “It can’t be ruled out that we’ll have individual monthly figures that are in negative territory.”

Schlegel said months with below-zero inflation aren’t a problem because the SNB’s monetary policy targets consumer-price gains over the medium term.

He reiterated that while he’s comfortable with the country’s current level of inflation, the SNB is ready to take borrowing costs below zero again if price growth slows too much.

“The national bank doesn’t like negative interest rates — at the same time we can’t rule them out,” Schlegel said. “It’s nothing we’d do lightly. We we’d re-introduce them if really necessary.”

At 0.6% in December, inflation is in the lower half of the central bank’s 0-2% target range. Some observers worry it may undercut it as electricity-price reductions are set to push the gauge down to 0.2% this month, according to Bloomberg Economics.

In his first rate decision at the helm of the SNB, Schlegel cut Swiss borrowing costs last month by the largest amount in almost a decade. With the key benchmark now at 0.5%, the central bank is just two standard-size steps away from zero.

“In monetary policy, it’s very important to do it in a forward-looking way, because what one does in monetary policy has a delayed effect,” he said. “This means that if one sees that monetary policy has to be eased, one shouldn’t wait but act immediately.”

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