Switzerland’s central bank needs to maintain its negative interest rates policy to prevent the Swiss franc from surging, according to the bank’s vice-chairman, Fritz Zurbruegg.

"We are firmly convinced that the negative interest rate is still necessary. If we were to raise interest rates now, the franc would appreciate significantly, economic growth would decline and unemployment would rise," he told the SonntagsZeitung newspaper. 

In August, Zurbruegg had cautioned that incessantly low global interest rates were driving Switzerland’s hot property market that posed risks to the country’s financial stability.

Yet, hiking interest rates was not the right course of action, the Swiss National Bank vice-chairman told the newspaper.

"We are largely in agreement among central banks that in the current situation it is more efficient to mitigate the risks, for example in the real estate and mortgage markets, with targeted measures than to raise interest rates," he said. 

"If we have to raise interest rates from a monetary policy perspective, we will do so. At the moment, we need the negative interest rate because of the global situation."

Zurbruegg reiterated the Swiss National Bank’s stance that the current rise in inflation in the country is only temporary and in the medium term it should remain low.

"The main driver at present is higher energy prices. This effect will subside again. Prices for tourism services also collapsed last year. Now they are rising again. This temporary effect should also return to normal," he added. The central bank was continuing to monitor the situation.

"The decisive factor is inflation expectations. If they move and people actually adjust to a higher inflation rate, that is problematic. But we do not see any change here so far," he went on to say.

The Swiss National Bank is holding its next quarterly policy review on 23 September.

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