ZURICH (Reuters) - The Swiss National Bank and other central banks still have room to ease monetary policy, SNB Governing Board member Andrea Maechler told newspaper Le Temps, adding that the Swiss franc remains overvalued.
The European Central Bank is widely expected to cut its negative deposit rate again in the coming week and possibly step up its bond buying, which could heap pressure on the SNB as it tries to rein in the Swiss franc.
Asked about market expectations of action by central banks in Switzerland and around the world, she said:
“Expectations are high, it’s true. We have not reached the limit of monetary policy, but this does not mean that it is unlimited. But we have seen in the United States with the quick cleanup of banks and the credit sector: When monetary policy is well supported by other political action, it can go further.”
In the interview released ahead of publication on Monday, she said the SNB acted in the interest of the entire country, adding: “But it is a fact: Monetary policy cannot do everything. It cannot replace structural reforms. It cannot force companies to adapt.”
The SNB uses negative deposit rates and a readiness to intervene on currency markets when needed to try to keep a lid on the franc, which Maechler said remained overvalued despite its weakening since last summer.
“We are moving in the right direction. Negative rates are playing their role in making holding francs less attractive,” she said, although it was hard to quantify their effect.
Intervention remained a policy pillar even though the franc was less of a safe haven than before, she said, noting risks from abroad had increased and the impact of Britain’s potential exit from the European Union remained unknown.
The biggest risk to Swiss financial stability would be a property market correction coupled with a strong rise in interest rates, although this was an unlikely scenario at the moment, she said.
She called it good news for financial stability that negative interest rates had not triggered a new drop in mortgage rates.
Writing by Mike Shields; Editing by Hugh Lawson