Swiss National Bank Considers Further Monetary Tightening Amidst Inflation Uncertainty

Schlegel also commented on the Swiss economic outlook, predicting subdued growth for the next year and a slight uptick in unemployment.

Swiss National Bank’s Vice-Chairman, Martin Schlegel, has indicated that the institution might consider further tightening its monetary policy in response to the evolving inflation situation in Switzerland.

In an interview with the Swiss newspaper SonntagsBlick published on Saturday, Schlegel suggested that future policy adjustments would hinge on the trajectory of inflation in the country.

Last month, the SNB opted to maintain its policy interest rate at 1.75%, citing the fact that inflation, which stood at 1.6% in August, remained within the central bank’s target range of 0-2%, albeit with some easing.

Schlegel cautioned, “It cannot be ruled out that further tightening of monetary policy may be necessary.” He emphasized that such a decision would be contingent on the course of inflation.

Despite Schlegel’s remarks, most economists surveyed by Reuters last month expressed the belief that the SNB had completed its interest rate hike cycle.

Schlegel also commented on the Swiss economic outlook, predicting subdued growth for the next year and a slight uptick in unemployment.

The Swiss franc recently reached its strongest level against the euro since 2015.

This appreciation was attributed to investor risk aversion stemming from the Middle East conflict and general euro weakness.

Schlegel noted that Switzerland’s reputation for stability led to the franc’s strength during crises but acknowledged the challenges this posed for Swiss export businesses in uncertain economic times.

Schlegel underscored that the central bank was learning from past experiences, particularly the government’s involvement in a rescue plan for Credit Suisse in March, which had rattled the Swiss banking sector and caused broader market turmoil.

He highlighted the rapid outflow of Credit Suisse’s liquidity, which surprised both Swiss and international regulators.

Additionally, Schlegel pointed out issues related to AT1 bonds, which were written off as part of UBS’s takeover of Credit Suisse.

He suggested that Credit Suisse should have suspended interest payments on these instruments sooner to provide immediate financial relief to the bank.

In summary, the Swiss National Bank remains watchful of inflation developments and is open to further monetary policy tightening if necessary.

Schlegel also acknowledged the challenges associated with a strong Swiss franc and highlighted lessons learned from recent financial events, particularly the need for proactive measures in the banking sector.