the policies of The Swiss national Bank (SNB) is increasingly becoming the focus of criticism. What do you think?
It is striking that the policy of the SNB governing Board differs greatly from all its predecessors. We see a very extreme monetary policy as never before - despite a very good environment. We have full employment, strong growth, also in the future, this should remain according to forecasts, high and we have an inflation rate within the target range. Nevertheless, the SNB is maintaining negative interest rates. Inflation, the interest rates are adjusted so low, as never in the last decades in Switzerland. And this has real negative effects: among other things, the pension funds and the real estate market. And you wonder why the SNB is required to pursue such expansionary monetary policy.
Because of the fear there, that there is again a strong appreciation of the Swiss franc.
This can always happen and has happened in the past. Since one usually responds in retrospect, and not preventive. If one operates because of a contingency permanent such extreme monetary policy, it will never change. This policy will be made in the fear that, in Europe, something can go wrong. In Europe can go very much wrong. But the question is whether you should drive such extreme monetary policy due to a highly uncertain political assessment of the future. This assessment was already the case in the last 10 years, and until now was wrong.
We have seen that due to the strong appreciation of the Swiss franc, particularly the export economy has suffered.
I do not believe that to be true. We had two appreciation shocks, 2011 to 2015. Both times, there was a recession. Every Economist would sign it, that this was due to the policy of the SNB. But currently we have no appreciation shock. On The Contrary. There are still a Overvaluation of the Swiss franc. But in historical terms it is rather normal. The Situation does not justify a extraordinary monetary policy.
so keep the Overvaluation of the Swiss franc is not a Problem?
The franc is strongly overvalued. We are not in the Situation as in January 2015, the Swiss franc has appreciated 20 percent against the major foreign currencies.
That we have a difficult Situation with Overvaluation do not have exceptionally more, but the current policy of the SNB's negative interest rates and the willingness of other foreign currency purchases?
Then would be the logical consequence that we must live for all time with negative interest rates, only because the Swiss franc might increase in value again. This seems to me absurd.
Would be emanating negative interest rates above, it would also shrink the interest rate differential to the European Central Bank. This would give the Swiss franc but boost. This difference in interest rates, there was a long time ago.
I don't think you can prove that the difference in interest rates has made the Swiss franc is strong or weak in the past. The recent appreciation shock of it came because of the Worries about the Euro-zone. It had to do with the interest rate differential. Because of 0.5% interest rate difference little is happening in the financial markets.
you do not believe, therefore, that the Swiss franc would appreciate if the SNB raises interest rates from the negative?
There would be a few days of unrest. The task of the SNB is to stabilize the long-term price level. Because we have a Problem. The monetary base was expanded in Switzerland is very much stronger than in the case of the European neighbours. The SNB's balance sheet is today almost eight times as large as in 2007.
When reversing but the negative interest rates, an appreciation, only further purchases of foreign Exchange. Therefore, the balance sheet would be inflated even further.
This implies that the Central task of the Central Bank is to protect us from fluctuations in exchange rates. This is not your task. You need to ensure price stability. A strong franc makes about cheaper imports for a very low Inflation. We were able to buy cars cheaper from abroad and cheaper then traveling. These are not bad developments. It was a so-called deflationary spiral with lower and lower prices and wages.
But there went a lot of jobs because of the appreciation is lost. A study even mentions of 100'000.
It is not the task of the SNB for jobs in Switzerland, but for price stability.
in Addition, the SNB has a target for Inflation of two percent. The appreciation of the Swiss franc has increased the distance to this goal is massive and it is still far away from.
It is also not the task of the national Bank, to protect us from cheap shopping. That is an upgrade for a year leads to lower import prices, is not to be equated with a threat to price stability.
Nevertheless, the fact that the SNB from its target value of 2 percent Inflation, far away remains, according to its own forecast for an unchanged monetary policy in the years to come.
inflation forecasts are always difficult. Also, the SNB was mostly wrong. (Editorial Tamedia)
Created: 09.01.2019, 14:47 PM