Negative interest rates remain fundamental to the Swiss National Bank’s monetary policy to head off any excessive appreciation of the Swiss franc, the bank’s vice president said in an interview with the Swiss weekly NZZ am Sonntag.
The US Federal Reserve has begun raising interest rates gradually, but with inflation still weak in the eurozone, there is little likelihood of the European Central Bank following suit any time soon, Reuters reported.
“The rate hike in the United States is a positive sign and shows that the prospects for the US economy have improved,” Fritz Zurbruegg told the weekly.
“For us, however, Europe is more important and the European Central Bank has not yet normalized its interest rate policy. It is important for us to maintain a difference to euro interest rates,” he said.
The SNB sees the Swiss franc as significantly overvalued and has imposed negative interest rates, in effect charging commercial banks to hold their cash at the central bank, to make the currency less attractive for investment purposes.
It has also accumulated foreign currency reserves by selling francs to weaken the domestic unit. A strong franc makes life more difficult for Switzerland’s exporters by making their products more expensive outside the country.
Intervening in the foreign exchange market was an integral part of the SNB’s approach to tackling franc appreciation, although the bank will not disclose details about any of its interventions, Zurbruegg said.
The SNB’s foreign currency holdings rose to about 645 billion francs ($639.8 billion) last year, similar to the size of the Swiss economy. But there was no pressure on the SNB to cut its reserves, Zurbruegg said.
“As long as it cannot be ruled out that a reduction would have a negative impact on monetary policy, we certainly will not begin to reduce the reserves.”