During a presentation at the University of Lucerne, the president of the national bank hammered home the importance of the independence of his institution for the proper conduct of its price stability mandate.
The recent poor financial performance of the Swiss National Bank (SNB) offers the chairman of its general management Thomas Jordan an additional argument to defend the independence of his institution with regard to political circles. The chief Swiss central banker once again hammered home the importance of this independence for the proper conduct of the SNB’s price stability mandate, during a presentation at the University of Lucerne.
The issuing institution has certainly established an evolving framework for redistributing the reserves built up during the good years, but these payments have been capped at six billion francs per year since 2021, compared to 2 billion from 2016 then 4 billion. starting in 2019.
The 103 billion accumulated at the end of last year led certain observers to overestimate the potential for redistribution of the SNB and to consider their ceiling too low, asserts Mr. Jordan in the script of his speech.
These gains were, however, reduced to a trickle over the first six months of the current financial year. Falling stock prices and rising interest rates worldwide weighed on the performance of stocks and bonds held by the SNB, generating a colossal deficit of 95 billion.
Mr. Jordan sees this as a demonstration of the relevance of capping and staggering any redistributions to the Confederation and the cantons, rather than a single and full transfer of reserves.
First measures against inflation from the end of 2021
Coming back to monetary policy strictly speaking, the central banker assures us that his institution reacted from the end of last year to the inflationary pressures which were already becoming clearer abroad. The SNB had, during its review of the situation in December, decreed that a certain appreciation of the franc – which had been opposed for a long time – could henceforth be tolerated. The phenomenon in fact attenuates the increase in the cost of imports, subsequently limiting the general rise in prices.
The inflation rate of 3.5% observed in August nevertheless represents a value well above the range of 0% to 2% considered synonymous with price stability. The two successive increases of 50 and then 75 basis points in the key rate decided in June and then in September – bringing it to 0.5% – may prove insufficient to curb this rise in prices and the SNB does not rule out having to once again carry out medium-term increases.
Although it now enjoys a certain leeway, the valuation of the franc remains closely watched by the institution, which reserves the possibility of influencing its appreciation by increasing or offloading its considerable foreign currency reserves.