V-shaped recovery unlikely for Swiss economy: SNB’s Maechler

Economy
© Reuters. Swiss National Bank's end-of-the-year conference in Bern © Reuters. Swiss National Bank’s end-of-the-year conference in Bern

By Brenna Hughes Neghaiwi

ZURICH (Reuters) – A full V-shaped recovery is unlikely for the Swiss economy, Swiss National Bank Governing Board member Andrea Maechler told Swiss newspaper Neue Zuercher Zeitung, as the central bank focuses on currency interventions to keep the Swiss franc in check.

“We are experiencing a shock that is stronger and more comprehensive than we could have imagined early on,” Maechler told the paper in an interview published on Saturday. “A slim and full V-shaped recovery is unlikely. Social distancing, the higher level of debt, the rise in unemployment and falling incomes mean the recovery will take more time.”

As the SNB keeps its ultra-expansive monetary policy in place, steered by negative interest rates and foreign currency interventions, interventions remained necessary to keep the safe-haven Swiss franc from soaring in value and thus prevent further damage to the Swiss economy, she said.

Despite pressure from the strengthening Swiss franc and a shock in oil prices, with their impact on inflation, the SNB does not fear a deflationary spiral in Switzerland, Maechler said.

“We do not currently see a risk to inflation,” she said.

The SNB in March doubled its payout to Switzerland’s regional and central governments to 4 billion Swiss francs ($ 4.11 billion), and has faced calls to up that payout amid expectations the economy will face its worst downturn in 45 years because of the new coronavirus outbreak.

The 4 billion franc payout was the annual maximum agreed between the SNB and the federal government. Maechler told the Neue Zuercher Zeitung that any additional one-off payment to finance costs emerging from COVID-19 would counteract monetary policy.

“We are already making our contribution to overcoming the crisis, and not just by intervening on currency markets,” she said.

A state-funded refinancing facility for companies affected by the crisis, a collaborative effort between Switzerland’s central bank, government, market supervisor and banks, was also helping to ensure sufficient liquidity in the banking system, Maechler said.

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