Perilous monetary balancing | Geneva Tribune

The news shook the landernau, while with a little hindsight we should rather consider it practically insignificant: the Swiss National Bank lowered its key rate last Thursday (which is basically not news, as it was so expected). But instead of lowering the said rate by a quarter of a point as usual, the SNB “courageously” reduced it by half a point, to 1%, which few expected. The big deal?

However, we remain in the vicinity of low rates, even almost non-existent, which obviously delight borrowers of all kinds, starting with mortgage debtors, as much as they annoy savers, frustrated at having to be satisfied with a remuneration covering barely, if still, their bank charges.

Basically, we know the central banks’ reasons for acting: inflation has, for the moment, fallen significantly (for the longer term, we will have to see); the economic situation, apart from the American one, is not rosy, rather gloomy; Finally, the franc, with regard to the Swiss case, tended to rise sharply even though it was already high and was beginning to make the already hard-pressed industrial joints groan. All of this therefore justified a certain risk-taking. Risk, because bringing the key rate too close to absolute zero reduces the room for maneuver available for subsequent actions, when the horizon will really be darkened.

But risk, again, quite moderate, because a quarter of a percentage point more does not fundamentally change the economic data. To appreciate what real cyclical or monetary shocks are, we must refer to the Covid period or, even further in the past, to those of the financial crises at the beginning of the present century. However, the financial markets appreciated, the stock market rose, and the franc fell slightly against the euro and the dollar.

More fundamentally, however, we must consider the monetary dilemma that the SNB constantly faces. Because lowering the key rate to slow down the rise of the franc and support the economy is antithetical to the objective of fighting inflation, which suggests on the contrary raising it to slow down the economy, but which at the same time contributes to increasing the franc.

Should we therefore deduce that if the reduction in the key rate is more pronounced than expected, it is because economic concerns are now dominant in the SNB’s analysis? It’s quite possible, because business is not going that well in Germany and is falling into disarray in France, two countries which still absorb 25% of our exports, far ahead of the United States for example ( 10%).

At the same time, we can question the true nature of the inflation residual reflected by the price indices. A certain increase in prices persists for domestic services, little influenced by variations in the exchange rate (the fall in the price of imported products, which are inputs for industry, has no impact on the “cost of production” of services) and not very sensitive to monetary policy (many of the prices of these services being, as they say, “administered”, since billed by public services). However, services weigh heavily on household budgets, and health insurance premiums in particular, as well as rents, hardly benefit from the strong franc. And therefore largely escape the spectrum of action of monetary policy.

“The Tribune of Opinions”

With the Tribune of Opinions, find analyzes, editorials, readers’ letters, expert opinions… So much insight to form your own opinion every Monday.

Other newsletters

Log in

Did you find an error? Please report it to us.

0 comments