SNB’s Maechler suggests that March rate hike will only have a limited impact on inflation, aiming to bring it closer to the 2% target.

The Swiss National Bank (SNB) has been grappling with low inflation for several years now. In an effort to boost inflation and bring it closer to the 2% target, the SNB has been pursuing a loose monetary policy, keeping interest rates at record lows and intervening in the foreign exchange market to prevent the Swiss franc from appreciating too much.

However, with the global economy showing signs of recovery and inflationary pressures building up, the SNB is now considering tightening its monetary policy. In a recent interview, SNB Governing Board member Andrea Maechler suggested that a rate hike in March would only have a limited impact on inflation, but would be necessary to prevent the economy from overheating.

Maechler’s comments come at a time when inflation in Switzerland is still well below the SNB’s target of 2%. In January, consumer prices rose by just 0.3% year-on-year, while core inflation, which excludes volatile items such as food and energy, was even lower at 0.1%.

Despite the low inflation, the Swiss economy has been performing well. GDP growth was 3.0% in 2018, the highest in almost a decade, and unemployment is at a record low of 2.4%. This has led some analysts to argue that the economy is overheating and that the SNB needs to act to prevent inflation from spiraling out of control.

Maechler’s comments suggest that the SNB is aware of these concerns and is considering a rate hike to cool down the economy. However, she also emphasized that any rate hike would be gradual and that the SNB would continue to intervene in the foreign exchange market to prevent the Swiss franc from appreciating too much.

The impact of a rate hike on inflation is uncertain. While higher interest rates can reduce demand for credit and slow down economic growth, they can also lead to higher borrowing costs for consumers and businesses, which can push up prices. In addition, a rate hike can strengthen the Swiss franc, which can make imports cheaper and put downward pressure on inflation.

Overall, Maechler’s comments suggest that the SNB is taking a cautious approach to monetary policy and is aware of the risks of tightening too quickly. While a rate hike in March may only have a limited impact on inflation, it could be the first step towards a more normal monetary policy stance and a move towards the SNB’s inflation target.

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• Source: Plato Data Intelligence: PlatoData