April 26, 2019 / 9:11 AM / 3 months ago

UPDATE 1-SNB's Jordan pans calls to ditch negative Swiss interest rates

* SNB says finance, foreign exchange markets remain “fragile”

* Chairman Jordan defends negative interest rates, intervention

* SNB Council president warns against politicised bank (Adds comment from bank council president, background)

By John Miller

BERN, April 26 (Reuters) - The Swiss National Bank must keep its interest rates negative and stand ready to intervene on currency markets to rein in the strong franc, SNB Chairman Thomas Jordan said, dismissing calls for the central bank to restore positive rates quickly.

Additionally, the head of the SNB Council, Jean Studer, made a plea to safeguard the institution’s “full independence”, saying any encroachment by politics would damage its ability to protect the interests of the country.

Even though global economic activity has weakened in recent months, the Swiss economy should gain pace after stagnating in the second half of last year, Jordan told the SNB’s annual shareholder meeting on Friday.

But prospects for inflation this year and next are subdued, and the situation on financial and foreign exchange markets remains “fragile” given economic and political uncertainties in several countries.

“Against the current backdrop, our unconventional monetary policy with the negative interest rate and our willingness to intervene in the foreign exchange market as necessary remains both essential and appropriate,” Jordan said, saying it took the good of the entire country into account.

He remains convinced that Swiss interest rates would eventually turn positive again. “I cannot tell you now when exactly that will be,” he added, prompting laughter from the several hundred shareholders in the audience.

A direction change, Jordan told them, depended on how inflation, growth and exchange rates develop.

Negative Swiss rates may have hit banks, pension funds and savers but they have served Switzerland well during the difficult years that followed the outbreak of the global financial crisis, Jordan said.

Abandoning negative rates at this stage would hit the Swiss economy hard, boost the attractiveness of the franc, increase unemployment and push inflation into negative territory without having much impact on low rates on capital markets, he said.

“Ultimately, there would be scarcely any significant improvement for savers, pension funds, life insurers and banks,” he said.

Studer, who is departing after a 12-year term on the council that oversees the conduct of SNB business, said allowing the Swiss central bank to make decisions independent of meddling by politicians was critically important.

Last year, Swiss Finance Minister Ueli Maurer suggested the growing SNB balance sheet, which has more than doubled since 2011 to more than 800 billion Swiss francs ($783 billion), is pushing the limits of sustainability.

More broadly, U.S. President Donald Trump’s criticism of interest rate hikes by the U.S. Federal Reserve as “crazy” has prompted global debate over the importance of central bank independence.

“The SNB can only fulfil its statutory mandate if it retains full independence in monetary policy matters,” Studer said. “A politicised central bank would no longer be able to carry out its tasks in the best interests of the country as a whole.”

$1 = 1.0205 Swiss francs Reporting by Michael Shields in Zurich and John Miller in Bern

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