- Since the December meeting, financial market situation has been characterised by elevated volatility
- Middle East conflict has resulted in surge in energy prices, which led to a global rise in inflation expectations
- With the appreciation of the Swiss franc since December, monetary conditions are tighter
- However, monetary policy remains expansionary
- The board discussed the various factors responsible for the movements in the Swiss franc exchange rate
- One factor is the Swiss franc's role as a safe haven
- The discussion also addressed the latest developments in energy prices
- Uncertainty about the future course of oil prices remains high
- The board also discussed the conditional inflation forecast, which assumes that the policy rate remains at 0%
- In the short-term, it is higher than the December forecast due to the rise in energy prices
- In the medium-term, the appreciation of the Swiss franc reduces inflationary pressure, countering possible second-round effects of the rise in energy prices
- Therefore, the inflation forecast over the medium-term is very close to that of the previous quarter
- Despite the escalation in the Middle East, the scenario for global economic developments has not changed fundamentally
- In light of the outlooks presented with regards to inflation and the economy, monetary conditions remain appropriate
- Monetary policy can currently still be considered expansionary
- However, the SNB's willingness to intervene in the foreign exchange market should remain high in order to counter a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland
- Full minutes
The key takeaway here is that the SNB is in stasis in now having to deal with the indirect repercussions of the US-Iran conflict. To be more specific, the issue of taming a much stronger Swiss franc currency.
The mention of that being a counterweight to a second-round impact of inflation pressures is a valid argument. However, the main worry is that the currency's strength will remain sticky and prove to be more detrimental when viewed from a more structural outlook.
With the central bank already wanting to avoid unconventional monetary policy such as negative interest rates any time soon, this is a welcome distraction but it won't change the path that the Swiss economy is put on in the bigger picture.
