SNB’s Zurbruegg Sees No Sign of 1930s Deflationary Spiral

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Swiss National Bank Governing Board Member Fritz Zurbruegg
SNB's Fritz Zurbruegg said, “The franc remains highly valued.” Photographer: Alessandro Della Bella/Bloomberg

Swiss National Bank Governing Board Member Fritz Zurbruegg doesn’t foresee Switzerland suffering from a broad-based and self-perpetuating fall in consumer prices, according to a newspaper interview.

“Currently we see no signs of a deflationary development as was experienced in the 1930s, that means negative price development across all goods and with a self-reinforcing downwards spiral,” he said in an interview with the Berner Zeitung published on Monday.

Although exports are weakening in the first half of the year and the SNB cut its growth forecast for 2015, “nevertheless we don’t expect this slowdown to turn into a recession,” he said.

Similar interviews with Zurbruegg were published in the Tribune de Geneve and 24 Heures on Monday.

The franc has appreciated roughly 15 percent since mid January, when the central bank gave up its cap of 1.20 per euro on the franc and instead cut its deposit rate to minus 0.75 percent. The stronger currency is a blow to exporters, and the country now faces the prospect of slower economic growth.

The SNB foresees a fall in consumer prices of 1.1 percent for 2015, with the annual inflation rate turning positive only in 2017. It predicts that the economy will grow “just under” 1 percent for this year.

In response to whether rates could be cut further, Zurbruegg said the SNB had already gone “quite far” with the deposit rate and that policy makers were “content” at the moment with the effect.

“The franc remains highly valued,” Zurbruegg also said, echoing a statement SNB rate-setters have made repeatedly in recent months. “We still assume that a weakening of the Swiss franc against the euro should take place.”

As of the end of April, the SNB had some 522 billion francs ($570 billion) of foreign currency reserves. The bulk of it was acquired due to interventions to weaken the franc and defend the minimum exchange rate, which was in force between September 2011 and January 2015.

“We can without a problem live for a prolonged period with this balance sheet size,” Zurbruegg said. “At some point there again will come a time, when from a monetary policy perspective we can reduce our balance sheet.”

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