The Swiss National Bank (SNB) surprised many bank economists with its interest rate decision. Most had anticipated a reduction of 25 basis points in the SNB interest rate, not the 50 basis points that were announced.

The Governing Board, which explained the decision to the media in Bern on Thursday – the monetary policy assessment takes place in the days beforehand – was chaired by Martin Schlegel. At the media conference at the end of September, Thomas Jordan, Schlegel's predecessor as Chairman of the Governing Board, was still at the helm, just a few days before he left the SNB after almost three decades.

New Governing Board

Schlegel mastered his task with aplomb. The new composition of the Governing Board, with Vice Chairman Antoine Martin and member Petra Tschudin joining, does not affect the course of monetary policy. The SNB remains firmly guided by its mandate of ensuring price stability.

Regarding the significant interest rate hike, he emphasized that it is better to act early than to make sharper corrections later. This approach assumes that the SNB's current assessment is accurate – though, of course, no guarantee exists.

Precautions Against a Relapse Into the Negative Era? 

Schlegel does not expect the inflation rate to fall below 0 percent, entirely in line with the SNB's inflation forecast, according to which the inflation rate should remain in the range that the SNB equates with price stability (0 to 2 percent on an annual average) until the third quarter of 2027.

In this context, he also made it clear: «Nobody loves negative interest rates, not even the SNB» With the recent substantial interest rate hike, the likelihood of the SNB resorting to the unpopular tool of negative interest rates – along with negative interest on sight deposits held by banks at the SNB – has significantly decreased.

No More Forward Guidance

Did Schlegel make this statement to temper expectations of further interest rate cuts? This theory is supported by the omission of the unusual wording used in September, which resembled forward guidance: «Further interest rate cuts may be necessary in the coming quarters in order to ensure price stability in the medium term.» This phrasing was not repeated this time.

The situation will be monitored and «monetary policy will be adjusted if necessary to ensure that inflation remains within the price stability range in the medium term,» this time only the obvious was noted.

Broad-Based Communication

While the SNB is not changing its fundamental monetary policy orientation under the new Chairman, there have been changes in terms of style. For example, Schlegel appealed to media representatives after answering a series of questions: «Why don't you ask my colleagues a question too?»

Previously, at media conferences following policy assessment, the Chairman would solely explain the monetary policy decision, while the other two Governing Board members addressed topics related to their respective departments. This time, however, the committee presented itself as a cohesive trio, focusing solely on core business.

And indeed, the journalists followed up with further questions, allowing Tschudin and Martin to actively participate in the Q&A session.