SNB Chairman Martin Schlegel defended the central bank’s monetary policy framework on Thursday, arguing that it has successfully maintained price stability despite repeated global economic shocks. Speaking at an event in Zurich, Schlegel emphasized Switzerland’s particular vulnerability to external disturbances because of its open economy and the Swiss Franc’s status as a major safe-haven currency. “Because we are open, the world’s storms hit us hard,” he said. Nevertheless, the SNB had kept inflation within its 0–2% price-stability range most of the time. “The SNB has fulfilled its mandate — price stability in the medium term,” Schlegel said, adding that its monetary policy strategy had proved effective across different economic conditions.
Schlegel highlighted the flexibility provided by the SNB’s combination of interest rates and foreign-exchange transactions. During the post-pandemic inflation surge, the central bank initially allowed the Franc to appreciate, helping contain imported inflation, before subsequently raising interest rates and selling foreign currencies to support the currency further. These measures helped bring Swiss inflation back within the SNB’s target range after it exceeded 3% in 2022. He also defended the decision to define price stability as a 0–2% range rather than a fixed inflation rate, arguing that this approach allows policymakers to tolerate temporary fluctuations without overreacting. The framework therefore gives the SNB flexibility to distinguish short-term price movements from developments that threaten medium-term price stability.
The remarks come as Swiss inflation has accelerated from 1.0% to 1.5% yoy in October, its highest rate in nearly three years, driven largely by higher fuel costs. The increase has strengthened expectations among economists that the SNB could raise its policy rate from the current 0% at its December meeting. However, Schlegel did not comment on the latest inflation figures or provide guidance on the next rate decision. Importantly, inflation at 1.5% remains within the SNB’s price-stability range, meaning the recent acceleration does not itself establish a need for immediate tightening. The key question is whether higher energy costs will generate more persistent inflation pressures, rather than remain a temporary increase that the Bank’s flexible framework can accommodate.
Key Takeaways
- SNB Chairman Martin Schlegel defended the central bank’s monetary policy framework: He argued that the SNB has maintained medium-term price stability despite repeated global shocks, demonstrating the effectiveness of its strategy.
- Switzerland remains particularly exposed to external shocks: Schlegel highlighted the country’s open economy and the Swiss Franc’s safe-haven status, observing that “the world’s storms hit us hard.”
- Interest rates and foreign-exchange transactions are complementary policy tools: During the post-pandemic inflation surge, SNB initially allowed the Franc to appreciate to contain imported inflation, before raising interest rates and selling foreign currencies to strengthen the currency further.
- The 0–2% inflation range provides flexibility: Schlegel argued that defining price stability as a range rather than a fixed rate allows the SNB to tolerate temporary inflation fluctuations without overreacting.
- Swiss inflation accelerated in October: Annual CPI rose from 1.0% to 1.5%, its highest level in nearly three years, driven largely by higher fuel costs. However, inflation remains within the SNB’s price-stability range.
- Expectations of a December rate hike have increased: The inflation acceleration has encouraged economists to anticipate a possible increase from the current 0% policy rate, although this remains uncertain.
- Schlegel offered no fresh policy guidance: He did not address October’s inflation figures or signal whether the SNB would raise rates at its December meeting. His speech focused on the effectiveness of the Bank’s established monetary framework.
- The persistence of inflation will be the important question: A temporary energy-driven increase may be consistent with the SNB’s flexible inflation framework, while more sustained or widespread price pressures could present a different policy challenge.
