GENEVA (Reuters) – The Swiss National Bank’s foreign exchange interventions are a vital tool in the central bank’s campaign against both inflationary and deflationary pressures, Vice Chairman Martin Schlegel said on Tuesday.
The SNB sold foreign currencies worth 133 billion Swiss francs ($147.04 billion) in 2023, equivalent to 17% of Swiss GDP, Schlegel told an event in Geneva.
The purchases boosted the value of the franc and helped reduce price rises by making imports cheaper.
Swiss inflation dipped in March to 1.0%, data showed last week, well within the SNB’s target range of 0-2% which it defines as price stability.
“Have foreign exchange interventions contributed to achieving price stability? Yes, they have,” Schlegel told the event at the International Center for Monetary and Banking Studies (ICMB).
“Without the use of foreign currency sales, the SNB would have had to raise the policy rate to a higher level,” he said.
Weak inflation allowed SNB to cut its policy rate to 1.5% last month, becoming the first major central bank to start rate cuts in the current economic cycle.
In the past the SNB has also bought huge amounts of foreign currencies to prevent too rapid a rise in the franc – which could have lead to deflation in Switzerland.
“Inflation has averaged 0.3% over the past fifteen years. Without foreign exchange purchases, inflation would have been much lower,” Schlegel said.
“Estimates suggest that it would have been significantly below zero without the purchases; we would thus not have fulfilled our mandate.”
The SNB said last month it had paused its foreign currency interventions at present, although Chairman Thomas Jordan said the bank could still buy or sell francs again in future according to the situation.
Schlegel, who could replace Jordan when he steps down in September, said the SNB only used forex operations “when necessary.”
“Stable prices are crucial for a prospering economy. Foreign exchange interventions….complemented interest rates well when it was needed,” Schlegel said.
($1 = 0.9045 Swiss francs)
(Reporting by John Revill)
