Swiss National Bank keep expansive policy, cuts inflation view

Madiha Shakeel December 13, 2018

ZURICH: The Swiss National Bank kept its ultra-loose monetary policy in place on Thursday, citing the “fragile” exchange rate situation as a reason to maintain its expansive course into its fourth year.

The SNB kept its target range for the three-month London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent, as unanimously forecast by 32 economists polled by Reuters. The rate has been frozen at this level since January 2015.

The central bank also kept in place the negative interest rate of -0.75 percent it charges on deposits held by commercial banks above a certain level, and said it remained ready to intervene in the foreign exchange markets if needed.

The SNB has used both measures SNB to prevent an appreciation of the Swiss franc, whose strength has posed problems for Switzerland’s export-reliant economy.

“Overall, the Swiss franc is still highly valued, and the situation on the foreign exchange market continues to be fragile,” it said.

“The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential. These measures keep the attractiveness of Swiss franc investments low and reduce upward pressure on the currency.”

The SNB does not need to raise interest rates to head off inflation in Switzerland, with its inflation forecasts for 2018, 2019 and 2020 all below 2 percent.

For 2018, the SNB said it still expects inflation of 0.9 percent. It cut its forecast to 0.5 percent in 2019 from its 0.8  percent view in September, and to 1.0 percent in 2020 from the previous 1.2 percent.

It saw Swiss economic growth slowing to 1.5 percent next year from an estimated 2.5 percent in 2018.

The central bank is widely expected to wait until the European Central Bank starts hiking its deposit rate – which stands at -0.4 percent – before normalizing policy.

The ECB is due to update its staff projections on growth and inflation at its policy meeting later on Thursday.

Copyright Reuters, 2018

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