Monetary policy report-Swiss National Bank
Swiss National Bank maintains expansionary monetary policy:
The coronavirus pandemic and the measures implemented
to contain it have led to a severe downturn in economic
activity and a decline in inflation both in Switzerland and
abroad. The SNB’s expansionary monetary policy remains
necessary to ensure appropriate monetary conditions in
The SNB is keeping the SNB policy rate and interest on
sight deposits at the SNB at – 0.75%, and in light of the
highly valued Swiss franc it remains willing to intervene
more strongly in the foreign exchange market. In so
doing, it takes the overall exchange rate situation into
account. Furthermore, under the SNB COVID-19
refinancing facility (CRF), it is providing the banking
system with additional liquidity and thus supporting the
supply of credit to the economy at favourable terms.
The SNB’s expansionary monetary policy helps stabilise
economic activity and price developments in Switzerland.
In the current situation, inflation and growth forecasts are
subject to unusually high uncertainty. The new conditional
inflation forecast is lower than in March (cf. chart 1.1).
This is primarily due to the significantly weaker growth
prospects and lower oil prices. The forecast for the current
year is negative (– 0.7%). The inflation rate is likely to
rise in 2021, but still be slightly negative (– 0.2%), before
returning to positive territory in 2022 (0.2%). The
conditional inflation forecast is based on the assumption
that the SNB policy rate remains at – 0.75% over the entire
forecast horizon (cf. table 1.1).
The coronavirus pandemic has pushed the global economy
into a sharp recession. The measures to contain the virus
have massively restricted both production and consumption,
which already led to a severe economic downturn in
many countries in the first quarter of 2020. The decline
in global GDP is likely to be even more pronounced
in the second quarter. Unemployment has increased in
many countries, with short-time work schemes having
prevented a stronger rise in Europe.
In light of the declining infection numbers, many economies
have in the meantime begun to ease their containment
measures. The first indications are that economic activity
has since picked up. Further loosening of the measures
is likely to contribute to a significant economic recovery
in the third quarter.
In its baseline scenario for the global economy, the
SNB anticipates that further waves of infection will be
successfully prevented. Nevertheless, as regards both
consumption and investment, demand is likely to remain
moderate for the time being. Global production capacity
will probably be underutilised for some time yet,
and inflation is likely to remain modest in most countries.
This baseline scenario is subject to a high level of
uncertainty on the upside and downside alike. On the one
hand, further waves of infection or trade tensions could
additionally impair economic activity. On the other, the
significant monetary policy and fiscal policy measures
introduced in many countries could support the recovery
more strongly than expected.
The Swiss economy is also in a sharp recession.
Correspondingly, most economic indicators have
deteriorated drastically in recent months. Short-time
working has reached unprecedented levels,
unemployment has risen rapidly, and consumer
sentiment has fallen to a record low. Although the
downturn set in only in March, GDP was already 2.6%
lower in Q1 2020 than in the previous quarter. The
low point in terms of economic activity came in April.
The decline in GDP is therefore likely to be even
stronger in the second quarter.
Various signals indicate that economic activity has picked
up again somewhat since May with the loosening of
containment measures. This positive development is likely
to continue in the coming months. However, the SNB
anticipates that, as abroad, there will be only a partial
recovery for the time being, and GDP will not return quickly
to its pre-crisis level. Overall, GDP is likely to contract
by around 6% this year. This would be the strongest
decline since the oil crisis in the 1970s. The economic
revival in the second half of the year is likely to be
reflected in clearly positive growth in 2021.
Monetary policy strategy at the SNB The SNB has a statutory mandate to ensure price stability while taking due account of economic developments.
The SNB has specified the way in which it exercises this
mandate in a three-part monetary policy strategy. First,
it regards prices as stable when the Swiss consumer
price index (CPI) rises by less than 2% per annum. This
allows it to take account of the fact that the CPI slightly
overstates actual inflation. At the same time, it allows
Given the fall in revenues experienced by many companies,
ensuring the appropriate supply of bridging loans to
the economy is crucial for a rapid recovery. Bridging loans
can prevent liquidity shortfalls caused by the crisis
from leading to insolvencies. To enable banks to offer such
loans quickly and at favourable terms, the SNB has
provided them with around CHF 10 billion in liquidity at
the SNB policy rate of – 0.75% since the launch of the
CRF. The banks receive this liquidity with COVID-19
loans guaranteed by the federal government or the cantons
serving as collateral. The federal government, the SNB
and the banks have thus ensured an appropriate supply
of credit and liquidity to businesses in Switzerland.
inflation to fluctuate somewhat with the economic
cycle. Second, the SNB summarises its assessment of
the situation and of the need for monetary policy action
in a quarterly inflation forecast. This forecast, which
is based on the assumption of a constant short-term
interest rate, shows how the SNB expects the CPI to
move over the next three years. As the third element in
implementing its monetary policy the SNB sets the
SNB policy rate, and seeks to keep the secured shortterm Swiss franc money market rates close to this rate.