Quarterly Bulletin 1 / 2022 March

1 Quarterly Bulletin 1 / 2022 March Quarterly Bulletin 1 / 2022 March Volume 40. Contents Page Monetary policy report 4. 1 Monetary policy decision of 24 March 2022 6. Monetary policy strategy at the SNB 7. 2 Global economic environment 8.. 3 Economic developments in Switzerland 14.. 4 Prices and inflation expectations 19. 5 Monetary developments 22. Business cycle signals 28. Glossary 37. Chronicle of monetary events 42. Quarterly Bulletin 1 / 2022 March 3. Monetary policy report Report for the attention of the Governing Board of the Swiss National Bank for its Quarterly assessment of March 2022. The report describes economic and monetary developments in Switzerland and explains the inflation forecast .

2 It shows how the SNB views the economic situation and the implications for monetary policy it draws from this assessment. The first section ( Monetary policy decision of 24 March 2022') is an excerpt from the press release published following the assessment. This report is based on the data and information available as at 24 March 2022. Unless otherwise stated, all rates of change from the previous period are based on seasonally adjusted data and are annualised. Quarterly Bulletin 1 / 2022 March Key points On 24 March 2022, the SNB decided to retain its expansionary . monetary policy. It kept the SNB policy rate at and is willing to intervene in the foreign exchange market as necessary. The conditional inflation forecast was above that of December 2021, particularly for 2022.

3 The global economic recovery continued in the fourth quarter . of 2021. It is difficult to assess the future course of the war in Ukraine and its impact on the global economy. In its baseline scenario, the SNB anticipates that the economic recovery will continue overall, albeit somewhat subdued. The positive economic momentum also continued in . Switzerland. The SNB expects GDP growth of around for 2022. The uncertainty associated with the forecast has increased considerably owing to the war in Ukraine. Annual CPI inflation continued to rise, and stood at . in February. The longer-term inflation expectations derived from the surveys were within the range compatible with price stability. The Swiss franc appreciated slightly in trade-weighted terms.

4 There was a marked increase in long-term interest rates , whereas share prices fell. Real estate prices continued to rise. Growth in monetary and credit aggregates slowed. Quarterly Bulletin 1 / 2022 March 5. 1 The global economic recovery continued in the fourth quarter of 2021. However, economic activity was Monetary policy decision temporarily impaired at the turn of the year by a renewed wave of the pandemic. At the same time, inflation of 24 March 2022 continued to rise in the US and the euro area. As a result of the war in Ukraine, there was a significant increase in financial market volatility in February, with strong rises in the prices of fossil fuels and other commodities. In its baseline scenario for the global economy, the SNB.

5 Assumes that energy prices will remain high for the time Swiss National Bank retains expansionary being, but that there will be no acute energy shortages monetary policy in the major economic areas. It also anticipates that the The SNB is retaining its expansionary monetary policy. global economic recovery will continue overall despite It is keeping the SNB policy rate and interest on sight the war in Ukraine, albeit somewhat subdued. The higher deposits at the SNB at and is willing to intervene commodity prices will lift inflation further in the short term. in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc. In so doing, Economic growth has slowed in Switzerland.

6 Following a it takes the overall currency situation and the inflation strong increase in both preceding quarters, GDP rose by rate differential with other countries into consideration. in the fourth quarter of 2021. For the year as a whole, The Swiss franc remains highly valued. Russia's invasion however, the Swiss economy grew by Momentum of Ukraine has led to a strong increase in uncertainty remained positive through to February 2022. The situation worldwide. Against this backdrop, the SNB with its on the labour market also continued to improve. monetary policy is ensuring price stability and supporting the Swiss economy. Thus far, the war in Ukraine has had an effect on the Swiss economy above all via the strong increase in commodity Inflation has risen again in recent months, and stood at prices.

7 The higher commodity prices are likely to weigh on in February. This is primarily due to the significant consumption and increase companies' production costs. increase in the prices for oil products and goods affected Foreign trade is also likely to be affected by the war, albeit by supply bottlenecks. The tight situation with regard to not severely given Switzerland's limited direct economic these products and goods is likely to persist in the coming ties to Ukraine and Russia. Supply bottlenecks in the case months owing to the war in Ukraine. The SNB's new of imported intermediate products could deteriorate conditional inflation forecast is therefore above that of further, and uncertainty could have an adverse impact on December, particularly for 2022 (cf.)

8 Chart ). The upward investment activity. revision is less pronounced over the longer term. The new forecast stands at for 2022, and for 2023 and 2024 (cf. table ). The conditional inflation forecast is based on the assumption that the SNB policy rate remains at over the entire forecast horizon. Chart . Year-on-year change in Swiss consumer price index in percent 2018 2019 2020 2021 2022 2023 2024. In ation forecast March 2022, forecast December 2021, SNB policy rate SNB policy rate Source(s): SFSO, SNB. 6 Quarterly Bulletin 1 / 2022 March In its baseline scenario for 2022, the SNB anticipates GDP increase the risk of inflation dynamics firming as a result growth of around , this being lower than its previous of second-round effects.

9 Added to this, a renewed forecast . In this scenario, growth is briefly subdued before deterioration in the pandemic situation cannot be ruled out. rebounding, and unemployment is likely to decline further somewhat. The momentum on the mortgage and real estate markets has continued, and the vulnerabilities have increased It is difficult to assess the future course of the war and further overall. Against this backdrop, the Federal Council its economic impact. The forecasts for the global economy reactivated the sectoral countercyclical capital buffer on and for Switzerland are therefore subject to very high 26 January 2022 following a proposal by the SNB, setting uncertainty. The risks to growth are considerable and to the level at of risk-weighted exposures secured by the downside.

10 In particular, a further escalation of the residential property in Switzerland. This will increase the war and a widening of the sanctions could weigh more capital requirements for these exposures as of 30 September heavily on economic activity worldwide and in Switzerland 2022, and will maintain and where necessary, strengthen . than assumed in the baseline scenario. At the same time, the banking sector's resilience. The SNB will continue a worsening in the tight supply of raw materials could lead to monitor developments on the mortgage and real estate to a further rise in inflation globally. This would also markets closely. Monetary policy strategy at the SNB inflation to fluctuate somewhat with the economic The SNB has a statutory mandate to ensure price stability cycle.