The SNB's June Monetary Policy Assessment

Yesterday, the Swiss National Bank published its summary of the discussions at its June monetary policy assessment. I remain impressed by these summaries. They strike a good balance between transparency and detail, conveying the Governing Board’s thinking without overwhelming the reader.

The summary contains several interesting signals about how the SNB currently views the economy and the outlook for monetary policy. One concerns the outlook for oil prices. Although oil futures were trading at around USD 80 per barrel, the Governing Board noted that global inventories are historically low and warned that, if the reopening of the Strait of Hormuz is only gradual, demand to rebuild inventories could push prices higher. That suggests the SNB sees a meaningful risk that oil prices could yet surprise on the upside.

The summary also notes that inflation expectations imply that real interest rates are currently negative and below their long-run equilibrium level. Combined with the observation that the depreciation of the Swiss franc has eased monetary conditions, this amounts to an acknowledgement that monetary policy is modestly expansionary. Given subdued domestic inflation and a weakening global environment, that appears both intentional and appropriate.

The discussion of inflation is also revealing. The SNB emphasises that headline inflation has risen because of higher oil prices, while its preferred measure of underlying inflation, the TM15 trimmed-mean inflation rate, remained at just 0.5%. That reinforces the impression that the Bank views the recent increase in inflation as largely temporary. Since the SNB clearly attaches considerable weight to TM15, it would enhance transparency if it published the series monthly.

Looking ahead, the SNB expects inflation to rise somewhat in the near term because of higher energy prices but to remain comfortably within the range consistent with price stability. As a result, the Governing Board sees no need to move the policy rate from its current level of 0%.

Finally, the summary suggests that the SNB’s preferred response to renewed appreciation of the Swiss franc would be foreign exchange intervention rather than a return to negative interest rates. Foreign exchange intervention therefore remains the Bank’s first line of defence against excessive appreciation.

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The views expressed are my own. The work presented is preliminary and may contain errors. It should not be construed as investment advice. Readers are encouraged to seek professional investment guidance.