Swiss franc appreciation has led to tighter monetary conditions – SNB minutes

Since the December meeting, financial market situation has been characterised by elevated volatilityMiddle East conflict has resulted in surge in energy prices, which led to a global rise in inflation expectationsWith the appreciation of the Swiss franc since December, monetary conditions are tighterHowever, monetary policy remains expansionaryThe board discussed the various factors responsible for the movements in the Swiss franc exchange rateOne factor is the Swiss franc’s role as a safe havenThe discussion also addressed the latest developments in energy pricesUncertainty about the future course of oil prices remains highThe board also discussed the conditional inflation forecast, which assumes that the policy rate remains at 0%In the short-term, it is higher than the December forecast due to the rise in energy pricesIn the medium-term, the appreciation of the Swiss franc reduces inflationary pressure, countering possible second-round effects of the rise in energy pricesTherefore, the inflation forecast over the medium-term is very close to that of the previous quarterDespite the escalation in the Middle East, the scenario for global economic developments has not changed fundamentallyIn light of the outlooks presented with regards to inflation and the economy, monetary conditions remain appropriateMonetary policy can currently still be considered expansionaryHowever, the SNB’s willingness to intervene in the foreign exchange market should remain high in order to counter a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in SwitzerlandFull minutesThe key takeaway here is that the SNB is in stasis in now having to deal with the indirect repercussions of the US-Iran conflict. To be more specific, the issue of taming a much stronger Swiss franc currency.The mention of that being a counterweight to a second-round impact of inflation pressures is a valid argument. However, the main worry is that the currency’s strength will remain sticky and prove to be more detrimental when viewed from a more structural outlook.With the central bank already wanting to avoid unconventional monetary policy such as negative interest rates any time soon, this is a welcome distraction but it won’t change the path that the Swiss economy is put on in the bigger picture.
This article was written by Justin Low at investinglive.com.

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