Before the interest-rate decision last Thursday, there had been a faint sense of suspense: Would the Swiss National Bank (SNB), like most other central banks, finally raise its key rate?

Admittedly, the sharply higher oil price is not fuelling inflation as strongly as in other countries because of the different composition of consumers’ shopping baskets. However, the franc, which has weakened due to the record-high interest-rate differential, is no longer cushioning imported inflation and is also stimulating the economy. Before (and also after) the interest-rate decision, growth forecasts for the Swiss economy were revised upward from several sides.

Is Economic Stimulus Still Needed?

The SNB, however, was unimpressed and kept the zero interest rate (its implementation in the money market still leads in part to negative rates).

At least the Governing Board noted that monetary policy and the weaker franc are supporting growth. But it was not able to explain convincingly why monetary stimulus is needed at all and instead essentially argued that sticking with the zero interest rate is compatible with fulfilling its mandate of price stability. That is not wrong, but it would also have applied to a policy rate of 0.25 percent. Conversely, there is also something to be said for sticking with the zero interest rate if it is interpreted as a commitment to an independent Swiss monetary policy.

Although the work of the delegates for regional business contacts was not mentioned as prominently this time as it was during the presentation of the interest-rate decision in June, the quarterly assessment of the talks they conduct with companies is likely to have fed into this evaluation of the situation as well. The corresponding report, "Economic Signals", is published as part of the Quarterly Bulletin in the week following the assessment of the situation; of course, the Governing Board already has the information beforehand.

No Additional Arguments for Zero Interest Rates

Would this report, published on Thursday and based on 210 discussions that the delegates held with company managements across Switzerland from 21 July to 8 September, help make the Governing Board’s decision more comprehensible in retrospect?

That is not the case; if anything, the opposite. The overall tone running through the latest "Economic Signals" is exceptionally bright, i.e. positive about what has been achieved and optimistic about the future. Had the SNB abandoned the zero interest rate, it would not have needed to rewrite the report.

Almost Euphoric at Times

For the current situation, the report uses formulations such as: "In industry, revenues rose significantly," and the SNB notes a "broadening revival." In the financial sector, there is talk of a "robust" business trend, with growing mortgage volumes and investment business. Demand is also solid in advisory services and in pharmaceuticals, and commodities trading is "benefiting from sharp price fluctuations."

Capacity utilization has also increased accordingly, although it remains below the zero line and therefore slightly below average. Profit margins improved in the third quarter thanks to better capacity utilization; export-oriented companies are additionally benefiting from the weaker franc.

Chart: SNB

"The construction industry continues to report full order books," the SNB notes, thanks to public-sector investment in infrastructure and private residential construction. Some companies report "front-loading effects in renovations and refurbishments in anticipation of the planned abolition of imputed rent."

Geopolitics Concerns Companies Less

One area of concern remains suppliers to the German automotive industry; they are trying to position themselves in other markets such as China or in other sectors such as aerospace and defence.

The tone is equally positive when it comes to the outlook. Companies are looking "very confidently" at future business developments and have "robust investment plans." Fears that the conflict in the Middle East, which continues to smoulder, will severely hurt the economy have faded.

Chart: SNB

The remarks on staffing levels are also noteworthy. For the first time in several quarters, companies describe them as "somewhat too tight." Artificial intelligence (AI), widely seen as a potentially major job killer, has in some firms even led to rising staffing needs for the relevant projects, according to the SNB.

Only traces remain of the much-discussed shortage of skilled workers: "Filling vacant positions has been perceived as comparatively easy for several quarters," the report says. Only in construction is the pool for project management and leadership positions tight. For the next two quarters as well, companies overall expect a "solid increase in staffing."