SNB does not rule out possibility of negative rates

By John Revill

LUCERNE, Switzerland, May 16 (Reuters) - Swiss National Bank Chairman Martin Schlegel said on Friday he could not rule out that negative interest rates may be needed again in future, while reiterating that the central bank is not in favour of them.

Schlegel, who has previously floated the possibility that the SNB might need to return to negative interest rates in pursuit of maintaining price stability, which it defines as inflation between 0-2%, was speaking in the city of Lucerne.

Schlegel declined to give a forecast for the SNB's next interest rate decision, due on June 19, noting that monetary conditions were currently "reasonably appropriate."

Still, he left the door open to a return to negative rates in future with inflation at the bottom of the SNB's target range. The SNB had negative interest rates in place from December 2014 to September 2022, mainly due to low inflation and the strength of the Swiss franc.

"We cannot rule out the possibility that at some point it would be necessary to introduce the negative interest rate again," Schlegel said. "Nobody in Switzerland likes negative interest rates ... national banks don't either."

Swiss inflation slipped to 0% in April, its lowest level in four years, data showed last week, fuelling expectations the central bank will cut its benchmark rate from the current 0.25%.

Markets currently see an 80% chance the SNB will cut by 25 basis points to 0% in June, and a 20% probability it will cut to -0.25%, according to LSEG data.

Interest rates and currency interventions are the SNB's main tools to control inflation.

Schlegel noted the SNB has only intervened in forex markets to dampen overvaluation of the Swiss franc when it threatens price stability, and not to get a competitive advantage for the country's exporters.

"Switzerland is not a currency manipulator," he said. "What we do is fulfil our mandate."

He said there was a good understanding of Switzerland's position on the franc among technical experts in the United States, which branded Switzerland a currency manipulator during President Donald Trump's first administration.

Schlegel said, however, he had not spoken with top U.S. officials about the matter.