SNB’s Jordan Says ECB Cut Creates ‘Complex’ Situation for Swiss

The Swiss National Bank will need time to assess the spillover effects from the European Central Bank’s interest-rate cut, President Thomas Jordan said.

“This is of course a complex situation for us, as European monetary policy will remain expansive for the foreseeable future,” Jordan said in Zurich today. Still, “European monetary policy can contribute to the improvement of Europe’s economy, which also should be of benefit to Switzerland,” he said. “We’ll have to wait to see how this develops.”

The ECB reduced its rate by a quarter point to 0.25 percent yesterday, as President Mario Draghi warned the euro area risks a “prolonged period” of low inflation. The SNB, whose benchmark rate has been at zero since 2011, has said it could take more steps to counter an unwanted tightening of monetary conditions and keep the franc weaker than its 1.20 per euro ceiling. The ECB cut diminishes the gap between the two benchmarks and could put pressure on the currency to strengthen.

Interest rates in the euro-area and Switzerland don’t “necessarily have to develop in tandem, especially since the economic situation in both places is different,” said Roland Klaeger, an economist at Raiffeisen Schweiz in Zurich. Even though inflation in both Switzerland and the euro area is weak, “the good economic momentum doesn’t really allow the Swiss central bank to follow suit,” he said.

Bubble Danger

Alessandro Bee, economist at Bank J Safra Sarasin AG in Zurich, agrees that the SNB won’t react.

“So long as the exchange rate doesn’t go up to the 1.20 per euro mark, they won’t need to do anything,” Bee said.

Jordan signaled the SNB’s monetary policy will stay loose.

“Interest rates remain low, and they will also remain low in Switzerland,” Jordan said. “This means that we continue to have an environment that could create bubbles in the property market.”

Switzerland’s residential real-estate market is strengthening, with the central bank’s loose monetary policy keeping the cost of taking out a mortgage low. The SNB, aiming to prevent a repeat of the real estate crisis of the 1990s, pushed for the introduction of a capital buffer for banks that took effect in September.

“We are constantly monitoring the situation to see if other potential measures are necessary,” Jordan said. “This is an ongoing task.”

Before it's here, it's on the Bloomberg Terminal.