Swiss National Bank (SNB) Chairman Martin Schlegel said on Monday that the mix of low inflation and 0% interest rates in Switzerland created a challenging environment for monetary policy.

However, he didn’t comment on whether this increased the likelihood of negative rates.

“As a central bank, my greatest concern is of course inflation and price stability, and we do everything we can to ensure that,” Schlegel told broadcaster SRF.

“At present with inflation at 0.1%, that's at the lower end of our definition of price stability - inflation of 0-2% - and with interest rates at 0%, that is not an easy situation for monetary policy,” he continued.

He noted that the SNB has two main policy tools, interest rates and foreign exchange market interventions, to guide inflation back within the central bank’s target range, Reuters news agency reports.

“We have already said several times that we are prepared to go into negative territory. However, the hurdle is higher to lower interest rates into negative territory,” Schlegel added.

The SNB Chairman said that the likelihood of reintroducing negative interest rates, which were unpopular with banks and savers when used from late 2014 to 2022, “is difficult to say.”

Instead, the central bank will continue to closely monitor both the economic situation and the Swiss Franc’s exchange rate, intervening in the forex market if needed.

For now, Schlegel said he expects Swiss inflation to increase in the coming months and described monetary conditions in Switzerland as appropriate.

Despite the recent drop in the US Dollar, Schlegel told the Eco Talk programme on Monday that there was no alternative for central banks holding US Treasuries as part of their foreign currency reserves.

He declined to comment on the actions of other central banks or sovereign wealth funds but underscored that currency reserves need to remain liquid.

“When you look at US Treasuries, that is still the largest and most liquid market. There is no alternative,” he said.