SNB President Schlegel on Rate Cut Decision, FX Market
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So today we decided to lower interest rates from 25 basis points by 25 basis points to zero. And the reason is that we observed lower inflation pressure in the last months and also quite low inflation. This led us to the decision to lower interest rates again. You said in March that further rate cuts are less likely now and still we see a rate cut today. Was was your hand today forced by how much the franc appreciated since the last interest rate decision. So we always come together as a board. We look at the data, we look at the models and we discuss. And given the lower inflation pressure that we observe in Switzerland, we came to the conclusion that this is the right decision to take today. But you didn't mention the franc in your answer now at all. Like, I think it's safe to say that the inflation pressures subsided because the franc went up. Right. There are some factors at work here. One is certainly the stronger Swiss franc, especially against the US dollar, but it's also tourism that is lower and it's also energy prices that is that were lower and put inflation to the downside to the downside at the Swiss National Bank. We'll look at more monetary conditions. Overall. This means interest rates in the one side, but also the exchange rate on the on the other side. And of course, given that the Swiss franc appreciated, this was certainly also a factor. Since you mentioned since you mentioned the oil price. So with the increase of the oil price from the newly enflamed way and the war in the Middle East, like there we see an increase in the oil price. So is that actually something which could relieve the Swiss inflation situation? Of course, if the oil price increases, this means that inflation also be they'll be a little bit higher. But of course, also the oil price also has an effect on on the economy. What we have seen so far, the increase in the oil price in the last days has only a very small effect on inflation. Back to the franc then. One tool that can be used in the past, the currency interventions to keep a lid on the franc. Did they are they still on the table now? Also with a US president, Donald Trump. The Swiss National Bank is ready to intervene in the FX market if necessary. I will repeat it is quite a lot in the last couple of months and this is still true. It's also important to say that we do not have an FX level in mind. We do not have an FX target. But the FX intervention interventions remain an important instrument that that we have. So Switzerland is not a currency manipulator. When we intervened in the FX market, it was to ensure appropriate monitor conditions to achieve our goal, which is price stability. However, during all of last year, all of 2024, you didn't intervene in a meaningful manner in that affects market at all. So are you scared of Trump? So we do monetary policy for Switzerland and there we have different instruments like the main instrument interest rates, but also FX interventions. And we use them and will also use them in the future to achieve our goal of price stability. You said today when we talk about the policy rate, you said today that you wouldn't go negative likely because of all those consequences that could have. However, if you don't want to go negative, then you basically have to intervene more in the exchange rate if the upward pressure on the franc stays. So doesn't that set you on a confrontation? Doesn't that set up a confrontation with Donald Trump? So, so far, uh, in the last one and a half years have lowered interest rates quite early and also decisively. And this means that at the moment the interest rate is expansionary. And this also has a positive effect, of course, on the on on inflation on the side. On the FX side, your right to intervene in the FX market that's necessary to achieve our goal, which is price stability. It is intentional that you're not mentioning the name of the US President I talk about Switzerland and the Swiss National Bank. I get it. All right, cool. Cool. So looking forward, like on July 9th, which is less than three weeks from today, the 90 day tariff reprieve, which Donald Trump has called for. And so that tariffs on Switzerland could ratchet up to 31% on that day. How much does that worry you for the Swiss economy? Of course, tariffs like this could have an impact on the Swiss economy, but it's it's very difficult to to see the exact amount because almost every enterprise is is is impacted differently. In Switzerland, uh, the Swiss National Bank is not in charge of negotiations. This is, of course, with the Confederation. And the Federal Council just ratified the mandate a few weeks ago. But still, you would have to react to the monetary conditions which politicians present you with. So do you think you might need to react very quickly after July 9th? We will see, uh, when this day comes. And do you think that you can reach your next scheduled decision in September without an unscheduled rate cut in between? How can you make a forecast in this? Sorry that I ask you for another forecasting question. How how likely do you think it is that you will go by the end of the year that you will have to go below zero? I will not do a forecast on this. We do monetary policy in every quarter at our at our assessments. There is a look at all the data and take a decision.
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