World Economy

SNB: Low Risk of Downward Wage, Price Spiral

SNB: Low Risk of Downward Wage, Price SpiralSNB: Low Risk of Downward Wage, Price Spiral

Switzerland’s central bank sees a low risk of a negative price and wage spiral and is hopeful that a recent “slight” depreciation in the currency will continue, the head of the Swiss National Bank said on Saturday.

In an interview on the sidelines of International Monetary Fund meetings in Lima, SNB Chairman Thomas Jordan repeated a pledge to keep interest rates in negative territory and intervene in currency markets if needed, Reuters reported.

Switzerland is wrestling with falling consumer prices, weak economic growth and a strong currency after the SNB in January abruptly abandoned its cap of 1.20 francs per euro. The franc is now trading around 1.09 per euro.

“We saw a certain depreciation of the franc but the Swiss franc remains overvalued, significantly overvalued, and of course this creates a difficult situation for the Swiss economy,” Jordan said.

“We have negative interest rates and we have also the readiness to intervene in foreign exchange markets if necessary, and both should contribute to a further weakening of the Swiss franc.”

Consumer prices fell 1.4% in the year through September but Jordan said the chance of a negative downward spiral in wages and prices was limited.

“This risk is limited because we have at the moment...oil prices and we have the exchange rate shock, and if the exchange rate does not further appreciate and oil prices do not fall further, we should have a stabilization in the inflation outlook and then go back to zero inflation in the beginning of 2017.”

Jordan declined to say whether the SNB had intervened on currency markets since its last foray into the markets in late June.