Swiss National Bank says policy strategy remains effective as inflation stays within target range

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SNB policy keeps inflation stable

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Swiss National Bank's Thomas Schlegel affirms that policy strategy remains effective as Swiss inflation stays within the 0%–2% target after exceeding 3% in 2022.
After the post-COVID inflation surge, the SNB allowed the Swiss franc to appreciate and sold foreign currency to reduce import costs and curb inflation.
Swiss inflation rose to 1.5% in October, its highest annual increase in almost three years, causing economists to expect a rate hike from the current 0% in December.

Policy response to crises and inflation

As reported by Reuters, Schlegel says Switzerland's status as a small, open economy, combined with the Swiss franc's role as a major safe-haven currency, leaves the country particularly vulnerable to external disruptions. Speaking at an event in Zurich on Thursday, he says the world's shocks hit Switzerland hard because of that openness.

Schlegel says the SNB uses both its policy interest rate and foreign exchange transactions to steer monetary conditions while targeting inflation of 0% to 2%, which it defines as price stability. He says the central bank responded to the post-COVID inflation surge by allowing the franc to appreciate to lower import costs, before later raising interest rates and selling foreign currencies to strengthen the franc further.

He says inflation returned to the target range after rising above 3% in 2022, and adds that aiming for a range rather than a fixed point allows the SNB to absorb fluctuations without overreacting. In his remarks, he says the central bank has kept inflation on target most of the time despite repeated crises and has fulfilled its medium-term price stability mandate.

December rate expectations build

Schlegel does not comment on the recent pickup in Swiss inflation, which government data showed on Tuesday rose to 1.5% in October, the highest annual price increase in nearly three years. The increase is driven by higher fuel costs.

That move is prompting growing expectations among economists that the SNB will raise rates from the current 0% level at its next meeting in December. Schlegel says the bank's monetary policy strategy works across a broad range of circumstances, underscoring the SNB's confidence in its current framework as markets assess the outlook for further tightening.

Draghi’s warning on the inflation–debt trade-off highlighted how aggressive tightening can raise debt burdens when rates stay above growth, potentially fuelling pressure for “fiscal dominance.” Our earlier article noted his argument that central banks should prioritise inflation control while keeping rates no higher than necessary, and that clearer communication can narrow market uncertainty over the future rate path while governments support growth through targeted investment policies.

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