The Swiss National Bank (SNB) reiterated that its primary tool for achieving price stability – defined as an inflation rate between 0% and 2% – is the policy rate, complemented when needed by foreign‐exchange interventions.
Schlegel explained that a rise in the policy rate influences both monetary and financial conditions: short‐ and long‐term rates adjust, asset prices shift, and the Swiss franc appreciates against major currencies.
Empirical estimates show that after a policy‐rate increase, the 10‐year Swiss government bond yield and the exchange rate both move higher, and one year later inflation and real output are lower than they would have been without the hike.
The speech cited the June 2022 rate hike, where the SNB lifted the policy rate by 50 basis points – a move larger than market expectations – prompting immediate market reactions: medium‐ and long‐term rates rose, the franc strengthened versus the euro and the US dollar, and equity prices fell.
During the 2021‐2022 inflation surge, the SNB combined further rate hikes with foreign‐currency sales, a strategy that the governor said helped prevent a broader inflation spread and limited second‐round effects on domestic prices.
Because Switzerland is a small, highly open economy – with more than half of its production exported and a similar share of consumption imported – the exchange rate has a pronounced impact on inflation both directly, via import prices (a quarter of the consumer basket), and indirectly, through aggregate demand.
Overall, the SNB’s three‐element monetary‐policy framework – a price‐stability definition, a conditional inflation forecast, and a flexible implementation mix of rate moves and FX interventions – is designed to navigate external shocks while keeping inflation within the 0‐2% target range over the medium term.