SNB’s Schlegel says policy will be adjusted without hesitation if price stability is threatened

October inflation surpassed expectations. Swiss National Bank Chairman Martin Schlegel said on Wednesday that the reading reflected increased inflationary pressures. Should price stability come under threat, the central bank would not hesitate to adjust policy, Schlegel added.

Key remarks

Inflation in Switzerland climbed, October figure exceeded expectations.

No major second-round effects so far, but can't be excluded later.

Central bank won’t hesitate to modify policy if price stability is endangered.

Central bank will monitor situation closely, especially for second-round inflation effects.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

0.53% lower: USD/CHF shows no response

USD/CHF is trading around 0.8165 at the time of writing, down 0.53%. The Swiss Franc (CHF) showed no reaction to SNB Chairman Schlegel’s remarks.

SNB: Essential questions

Swiss National Bank: Role and mandate

Switzerland’s central bank, the Swiss National Bank (SNB), operates independently with a mandate to safeguard price stability over the medium and long term. It defines price stability as an annual increase of less than 2% in the Swiss Consumer Price Index (CPI). To achieve this, the SNB seeks to keep monetary conditions appropriate, with those conditions determined by interest rate levels and exchange rates.

Swiss Franc: The impact of SNB interest rate policy

Guided by its price stability objective, the Swiss National Bank (SNB) Governing Board sets the appropriate policy rate. The bank seeks to curb excessive price growth by increasing that rate when inflation exceeds its target or is forecast to do so in the foreseeable future. By lifting yields, higher interest rates make Switzerland more attractive to investors and generally support the Swiss Franc (CHF). Lower rates, by contrast, tend to put downward pressure on CHF.

SNB intervention in the forex market

The Swiss National Bank (SNB) regularly intervenes in the foreign exchange market to curb excessive appreciation of the Swiss Franc (CHF) against other currencies. Switzerland’s substantial export sector becomes less competitive when CHF is strong. From 2011 to 2015, the SNB maintained a peg to the Euro to restrain CHF gains against it. Intervention draws on the bank’s sizeable foreign exchange reserves and typically involves purchases of currencies such as the US Dollar or the Euro. When inflation is high, especially when driven by energy costs, the SNB holds back from market intervention. A stronger CHF lowers the cost of energy imports, softening the price shock for Swiss households and businesses.

SNB Governing Council: Monetary policy timetable

March, June, September and December are the months in which the SNB holds its quarterly monetary policy assessments. Each assessment leads to a monetary policy decision and the release of a medium-term inflation forecast.