(Bloomberg) --
Negative rates are “essential” for preventing the franc from appreciating and the Swiss National Bank has the leeway to cut them further, according to SNB Alternate Governing Board Member Martin Schlegel.
The decision to change its tiering system to grant banks a bigger exemption from negative rates “gives us some leeway, for example, to keep negative interest rates for a longer time, but also maybe to lower interest rates,” he said at an event in Zurich. “We always said that we still have the room to lower interest rates.”
Read More: Swiss Bankers Group Calls on SNB to Scrap Negative Interest Rate
For the last four years, SNB policy has consisted of a deposit rate of -0.75% plus a pledge to intervene in currency markets, if needed, to stem appreciation pressure.
Banks complain the SNB's ultra-loose policy crimps profits, and the Swiss Bankers Association last week called on the SNB to scrap the policy.
In a direct rebuff of critics who contend the franc wouldn't rise if the SNB ended negative rates, Schlegel said the academic literature showed otherwise.
“A lot of the critics say we could stop with the negative interest rates and go to zero again and the Swiss franc would not react. We think, or we are very sure, that this is not possible,” he said at an event in Zurich on Tuesday. “Negative interest rates are central to keeping the Swiss franc relatively unattractive compared to other currencies.”
With global growth slowing, the SNB also sees a loss of momentum in Switzerland. It forecasts expects growth between 0.5% and 1% in 2019.
In 2020 Swiss growth will look “a little bit better,” Schlegel said.
To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Brian Swint
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