WASHINGTON: Swiss National Bank (SNB) Chairman Thomas Jordan vowed on Friday to take whatever steps were necessary to fend off deflation in the face of a weak global economy, worsening euro zone outlook and falling commodities prices.
Jordan said policymakers were closely watching the risk of negative inflation rates, or deflation, given a deterioration in the economy of the euro zone, Switzerland's main trading partner.
"At the moment we have this deflation risk, or risk of negative inflation, especially also because the European situation deteriorated recently," he told Reuters on the sidelines of World Bank and International Monetary Fund meetings in Washington.
"It's something that is really on the radar screen."
The SNB cut inflation forecasts for 2015 and 2016 to 0.2 percent and 0.5 percent, respectively, and earlier this week figures showed Swiss consumer prices fell from a year ago for the first time in seven months in September.
Jordan said risks to the SNB's outlook were to the downside.
"There are downward risks especially given lower commodity prices, lower oil prices, and a weaker world economy.
Usually these are also signs that risks are to the downside rather than to the upside," he said.
The SNB set a cap for the franc at 1.20 per euro in 2011 to fend off deflation and a recession and said after its last meeting it could take further steps if needed to defend the currency, which has risen recently amid rising global political tensions and the euro zone's ultra-loose monetary policy.
That sparked speculation the Swiss central bank might cut interest rates into negative territory, as the European Central Bank has done.
But Jordan said the currency cap remained the key policy tool, although the central bank had not actually intervened in markets since September 2012.
"We do not exclude any other measure if it's necessary, including negative interest rates," he said, declining to give details about the possible triggers for such a move.
"We will defend the minimum exchange rate with unlimited intervention if necessary and if necessary we are also ready to take immediate action with other instruments."
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