Daily Management Review

Government Supports SNB’s Flexible Monetary Policy Amid Other Oppositions


12/23/2016


Negative rates and low debts allowed a strong hold on franc even though it hurt pension and bank funds.



Swiss government stands by the policy of central Bank on its “ultra-loose monetary policy” which faced criticism from the parliament members for removing “its cap on the value of the Swiss franc against the euro nearly two years ago”.
 
Following the removal of cap “franc surged against the euro”, whereby the economy driven by export took a hit as “its goods” turned “more expensive in other countries”. In an attempt to bridle the surge of franc, the SNB pushed for “negative interest rates and currency intervention”. While, the cabinet stated:
“The SNB's monetary policy concept has proved its worth also in difficult situations such as in the wake of the global financial crisis from 2007 to 2009”.
 
The cabinet confirmed that SNB was equipped to match the “mandate” for guaranteeing “price stability” and yet pay attention towards the “overall economy”. Moreover, SNB is capable of influencing the “value of the franc if it considers this necessary”, informed the cabinet statement. As a result, there was no need to introduce new “governance at the SNB”.
 
Nevertheless, many Swiss do not give their consent in this, as the negative rates hurt “pension” and bank funds resulting in a hard times for savings. While, the cabinet retorted that the “low rates were a global phenomenon”, and the SNB’s stand to keep negative rates is only to bring down the “appeal of franc-denominated assets”. As per the statement:
“They are effective only if all financial market players are affected by them. Any exceptions would create a precedent which would diminish the effectiveness of monetary policy”.
 
Moreover, Reuters reported that:
“The government saw scant opportunity to use the low-rate environment to give the economy an extra shot in the arm despite calls to refinance state debt, create a special fund to promote investment or have the SNB seek higher returns on its portfolio”.
 
Furthermore, the government already has plans of optimising the “state finances and debt” as it “extended debt maturities to lock in low rates”. Fearing a higher cost of refinancing in the future, the government did not entertain the ideas of “boosting debt or creating a new state fund”. Besides, government did not see any reason to alter the methods of SNB’s investments into “huge currency reserves” that as of November end summed up to “648 billion Swiss francs ($631 billion)”.
 
 
 
 
 
 
 
 
References:
http://www.reuters.com/







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