Photographer: Valentin Flauraud/Bloomberg

SNB Can Cut Rates Further If Needed, President Jordan Says

Updated on
  • President says negative rates make sense for Switzerland
  • Brexit, European outlook focus of Jordan chat with Draghi

The Swiss National Bank can cut interest rates further into negative territory if needed, President Thomas Jordan said.

“We have still some room to go further if necessary,” Jordan said Saturday in an interview in Washington with Bloomberg Television’s Francine Lacqua. Jordan, who is attending the annual meetings of the International Monetary Fund and the World Bank, noted that the bank has already pushed rates quite far.

For almost two years, the SNB has pursued a twin-pillar strategy of negative interest rates of minus 0.75 percent and a pledge to intervene in currency markets. Additional easing in the neighboring euro area has repeatedly sparked speculation among economists that the SNB may decide to lower rates further in a bid to maintain the interest-rate differential and stop the franc from appreciating. Analysts think the SNB could cut its deposit rate to as low as minus 1.25 percent if needed, according to Bloomberg’s most recent monthly survey.

The SNB’s current policy “makes sense and is appropriate for the foreseeable future,” Jordan also said.

While negative rates have been widely criticized by financial institutions, Credit Suisse Group AG Chief Executive Officer Tidjane Thiam recently defended the measure being used in small countries. In Switzerland, which has the most severe sub-zero interest rate of any major central bank, a certain amount of cash is exempt from the SNB’s charge, with the threshold currently set at 20 times an institution’s minimum reserves.

“It makes, definitely, sense for Switzerland,” Jordan said of negative rates, and there’s “a lot of evidence that the exchange rate channel is working.”

No Hoarding

He said he doesn’t see “massive hoarding of cash at the moment” in Switzerland, despite the negative-rate policy.

Jordan said he had talked with European Central Bank President Mario Draghi during the meetings, discussing Brexit and the outlook for Europe. He’d also spoken with Fed Chair Janet Yellen, discussing policy risks and global monetary policy.

Switzerland’s economy grew at the fastest pace since 2014 in the second quarter, and the SNB sees 2016 growth of about 1.5 percent. Still, the central bank said last month that Britain’s June vote to exit the European Union has clouded its view of the global economy. Swiss consumer prices have been falling for 23 months and while the SNB predicts they will grow again in the next half year, the inflation rate for 2017 is seen at just 0.2 percent.

— With assistance by Alessandro Speciale, Jeff Black, and Francine Lacqua

(Updates with comment on policy in fourth paragraph.)
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