The Swiss National Bank (SNB) was established in 1907 to conduct central banking activities for the Cantons and Confederations. It is obliged under the Swiss constitution to act in accordance with the interests of the country as a whole.
The SNB is responsible for three key areas:
- Implementing monetary policy
- Contributing to financial stability
- Managing currency reserves
Is the SNB Independent?
The SNB also has full control in determining the setting of targets to achieve the primary objective of price stability.
Crucially, there is no provision for the price stability target to be changed by governments. The SNB is therefore more independent than the Federal Reserve and the most independent of all major global central banks in determining policy, especially with very little in the way of parliamentary insight. Price stability is seen as an extremely important national objective that gives the SNB very strong authority to achieve its mandate.
The SNB does, however, distribute profits to individual Cantons, which can cause a potential conflict of interest in formulating currency policies.
The SNB has defined price stability as achieving a rate of consumer inflation of less than 2% per annum. Although not defined precisely, the target is to keep inflation above zero with negative inflation seen as damaging to the overall national interest.
The bank is charged with resolving, in the best general interests of the economy, any conflicts arising between the objective of price stability and business cycle considerations while giving priority to price stability.
SNB Governing Board
The SNB Governing Board guides the operation of the SNB to promote the goals and fulfil its responsibilities.
The Governing Board is comprised of the Chairman, Vice Chairman and one other member.
Monetary Policy Operation
The SNB Governing Board adjusts monetary policy in order to achieve its target of price stability. This is achieved by adjusting the level of interest rates in the economy, with the bank targeting the level of three-month Libor. The SNB sets an operational target range for Libor with a preference for the rate to be in the middle of this range, unless otherwise stated.
The SNB has used negative interest rates since the beginning of 2015 to help alleviate upward pressure on the exchange rate.
SNB Monetary Policy Meetings
The Governing Board meets quarterly to determine monetary policy. Following the meeting, the policy decision is announced along with any changes to interest rates.
The bank issues a monetary statement following the decision, which describes the justification for monetary policy and also updates its macro-economic forecasts including inflation.
Following the decision, the SNB Chairman also holds a media conference.
The SNB can make monetary policy decisions at any time and not just during the scheduled policy meetings.
While committed, in principal, to a floating exchange rate, the SNB has used currency pegs and maximum permitted franc levels in order to combat perceived over-valuation of the currency, especially in times of very high global volatility. The use of currency pegs has created considerable controversy both domestically and internationally and has not proved to be sustainable, with reversion to a fully-floating regime causing very high volatility.
The SNB also has the power to intervene in the currency markets and either buy or sell francs if it feels there is serious malfunction in the market operations or that the exchange rate is substantially out of line with economic fundamentals. Intervention is frequently used and can have a very substantial impact when deployed openly and aggressively. The SNB only rarely confirms whether it has been intervening in the market.
Swiss National Bank Publications
The SNB produces a quarterly bulletin that gives further background information on the latest monetary policy decisions and other articles of interest.
SNB Member Speeches
Members of the SNB Governing Board often make speeches during their time in office. These are important in setting out their thoughts on the economy and potential trends in interest rates. These remarks can be significant in moving markets, especially when the Chairman is looking to signal a change in policy direction or make a specific point over market trends.
The SNB produces a number of economic data releases relating to credit, money and the balance of payments. The market pays close attention to monthly data on currency reserves and weekly data on sight deposits as these give insights into potential currency intervention by the National Bank.
Financial Stability Report
The SNB produces a financial stability report every year. The bank tracks developments within the banking and financial system and draws attention to any strains or imbalances, which could pose a threat to system stability in the short or longer term. The bank will also actively engage with regulators to address any vulnerabilities that are identified.