Swiss policymakers know all too well that charges of Swiss franc deposits are hated. The Swiss National Bank spent considerable time at its shareholder meeting making a case for them – along with some comforting words.
When Switzerland's central bank lowered its benchmark interest rate to 0.75 percent in 2015, it maneuvered into a situation it views as highly unconventional today: maintaining a peg on the franc to the euro became untenable, and thus «we had no option but to resort to unconventional means», Swiss National Bank (SNB) head Thomas Jordan said at an annual general meeting on Friday.
Policy hasn't changed in the four years hence – and pension funds, savers, and banks are increasingly griping about having to pay to hold Swiss francs. In response, Jordan allotted ample time to justifying the necessity of negative interest rates to a wider population.
Escaped Lightly
He is convinced that the Swiss economy «got off relatively lightly» in comparison to neighboring countries thanks to the policy. «The SNB's unconventional monetary policy substantially cushioned the blow of external shocks», with negative interest rates a key contributor.
Without the charges and accompany interventions by the central bank in foreign exchange markets, the Swiss franc would be far stronger, inflation would tumble below zero, growth would skid, and unemployment would surge, Jordan said.
The top policymaker stifled any hope that interest rates will leave negative territory anytime soon: «abandoning the negative interest rate in the current environment would weigh heavily on the Swiss economy», the dry, unflappable central banker argued.
Thomas Jordan: «At Some Point...»
Pension funds and other finance players would hardly benefit. Instead, the franc would rise, imperiling economic growth. In short, monetary policy is going to remain expansive: «Ultimately, there would be scarcely any significant improvement for savers, pension funds, life insurers and banks», he said.
The SNB head had some comforting words for the battered finance industry: «I am convinced that we will at some point return to positive interest rates. I cannot tell you now when exactly that will be. This will hinge on developments in inflation, growth and exchange rates going forward.» Sounds as thought it will be awhile.
