Explain why the SNB decided to keep its policy rate at -0.75%.

Q&A Homework for Econ 335 International Finance

Read the posted article “As Swiss Economy Blooms, Central Bank Presents a Quandary,” from the March 15, 2018 Wall Street Journal (author Brian Blackstone) about the most recent policy decision by the Swiss National Bank (SNB), Switzerland’s central bank.Please note: Switzerland currently floats its currency. Then answer the following questions about the article.

Explain why the SNB decided to keep its policy rate at -0.75%.Use the EUD and r equations to help with your explanation.

Why does the author say that “the central bank is still in crisis mode?” (Hint: look at the reported indicators describing current Swiss macro performance.)

How has the low policy rate affected the Swiss housing market? Is this a potential problem?

Does this article suggest a potential conflict between internal balance (IB) and external balance (EB) in Switzerland?

Solution preview

Swiss National Bank (SNB) decided to keep its policy rate at -0.75% because it had a lackluster economic growth since the Financial Crisis in late 2008 which resulted in the lowering of the inflation rates until they are now hovering around zero…………………..

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