Swiss National Bank (SNB) President Thomas Jordan said the franc’s strength played a key role in keeping inflation low compared with the United States and the euro area.
The fact that price growth never exceeded 3.5% in recent years is mostly down to the country’s exchange rate, Jordan told business representatives at an event Tuesday in canton Schwyz, Switzerland. By comparison, US inflation peaked at 9.1% in 2022, while it reached a high of 10.6% in the euro zone that same year.
“If you want to protect yourself against imported inflation, then the franc must appreciate,” Jordan said. That’s why the central bank stopped buying foreign currencies to counteract franc inflows in 2022 and even reduced its holdings of them through the end of 2023, he said.
Jordan, who’s due to leave his post next month, said the franc’s appreciation allowed the SNB to raise interest rates less drastically than its developed-market peers. The central bank raised its policy rate to 1.75% before starting to ease in March, while the European Central Bank and the US Federal Reserve hiked borrowing costs to much higher peaks.
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A blessing and a curse: the strength of the Swiss franc
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In times of crisis, international investors often bet on the Swiss franc. How has this reputation come about?
Still, worries about the Swiss currency’s traditional allure as a safe haven for investors persist. The country’s biggest lobby group for manufacturers has urged the SNB to intervene to stop further franc strengthening, which they say hurts exports.
The franc has recently stabilised, having surged before on worries about a potential US recession and turmoil in Japanese.
Analysts and markets diverge on how this affects the path for Swiss rates. While a majority of economists surveyed by Bloomberg expects only one more 25 basis-point cut in September, to 1%, traders are betting on more loosening.
Swiss homeowners ‘should contribute to earthquake insurance’
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The Swiss government wants homeowners to shoulder a maximum 0.7% of the cost to insure buildings against severe earthquake damage.
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Redundancies at Switzerland’s largest bank will test the capacity of the financial sector to absorb jobs. A year ago Credit Suisse staff were stunned by the sudden demise of their bank. Many are now fighting for their careers with 3,000 Swiss posts set to be axed by their new employer UBS, starting this year.
UBS already has to build up additional equity capital because it has become much larger as a result of the Credit Suisse takeover, Finance Minister Karin Keller-Sutter said.