Absorbing the franc shock: negative rates and chronic low inflation

After abandoning the 1.20 floor in January 2015, the SNB had to manage a currency shock without its main tool of the previous three and a half years. Speaking at the SNB's shareholders meeting that April, chairman Thomas Jordan explained that negative interest rates, by then at -0.75%, together with a continued readiness to intervene in foreign-exchange markets as necessary, would substitute for the abandoned floor in keeping the franc's appreciation from choking off growth. The transition was rough: Swiss consumer prices fell roughly 1.1% in 2015, and inflation stayed negative or near zero for several more years as the stronger franc pushed down import prices and squeezed exporters' margins. The SNB kept its policy rate at -0.75%, among the most negative of any major central bank, for more than seven years, using it alongside sizeable foreign-currency purchases to lean against further franc strength. Inflation only returned durably to positive, modest levels around 2018, underscoring how long a small, open economy can take to absorb an exchange-rate shock once a formal ceiling is gone.