SNB reserves are too risky to finance the state, argues Thomas Jordan

During a presentation at the University of Lucerne, the president of the national bank emphasized the importance of his institution’s independence for the proper implementation of its price stability mandate.

The recent weak financial performance of the Swiss National Bank (SNB) offers Thomas Jordan, the chairman of the general board, an additional argument to defend his institution’s independence in political circles. During a presentation at the University of Lucerne, Switzerland’s chief central banker reiterated the importance of this independence for the proper implementation of the SNB’s price stability mandate.

The issuing body has certainly created a thriving framework for redistributing reserves built up in good years, but these payments are capped at six billion francs a year from 2021, compared to 2 billion from 2016 and then 4 billion starting in 2019.

103 billion collected at the end of last year led certain observers to overestimate the SNB’s redistribution potential and to consider their ceiling too low, Mr. Jordan says in the script of his speech.

However, during the first six months of the current financial year, these earnings have declined by a drop. Falling stock prices and rising interest rates worldwide have affected the performance of the stocks and bonds held by the SNB, creating a huge deficit of 95 billion.

Mr. Jordan sees this as demonstrating the urgency of limiting and staggering any redistribution across the Confederacy and cantons rather than a uniform and complete transfer of resources.

The first anti-inflation measures from the end of 2021

Returning to monetary policy, the central banker assures us that his institution has responded to the inflationary pressures that have become evident abroad since the end of last year. In a December review, the SNB decided that some appreciation of the long-opposed franc could continue to be tolerated. This phenomenon actually weakens the increase in the cost of imports, which subsequently limits the overall price increase.

The 3.5% inflation rate observed in August, however, represents a value well above the 0%-2% range considered synonymous with price stability. Two consecutive key rate hikes of 50 and then 75 basis points, decided in June and then in September – to bring it to 0.5% – may prove insufficient to curb this price rise, and the SNB is not ruling out having to raise rates again . medium-term increases.

Although it currently has some freedom, the franc’s valuation is closely monitored by the agency, and it retains the ability to influence its appreciation by increasing or draining significant foreign exchange reserves.

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