Negative interest rates still necessary: Swiss National Bank

Zurich

THE Swiss National Bank needs to maintain its policy of negative interest rates to keep the safe-haven Swiss franc from surging, SNB vice-chairman Fritz Zurbruegg said in a newspaper interview.

"We are firmly convinced that the negative interest rate is still necessary. If we were to raise interest rates now, the franc would appreciate significantly, economic growth would decline and unemployment would rise," he told the SonntagsZeitung in an interview released last Saturday.

Mr Zurbruegg had warned last month that persistently low global interest rates were fuelling a red-hot Swiss property market that posed risks to financial stability.

But raising rates was not the proper response, he told the newspaper.

"We are largely in agreement among central banks that in the current situation it is more efficient to mitigate the risks, for example in the real estate and mortgage markets, with targeted measures than to raise interest rates," he said. "If we have to raise interest rates from a monetary policy perspective, we will do so. At the moment, we need the negative interest rate because of the global situation."

Mr Zurbruegg reiterated the SNB's view that the current rise in inflation in Switzerland is temporary and in the medium term it should stay low.

"The main driver at present is higher energy prices. This effect will subside again. Prices for tourism services also collapsed last year. Now they are rising again. This temporary effect should also return to normal," he said. The SNB was keeping an eye on the situation.

"The decisive factor is inflation expectations. If they move and people actually adjust to a higher inflation rate, that is problematic. But we do not see any change here so far," he said.

The SNB holds its next quarterly policy review on Sept 23. REUTERS