Swiss National Bank sees no alternative to expansive policy to tackle COVID-19

ZURICH: The Swiss National Bank paid no heed to being branded a currency manipulator by the United States, promising on Thursday to continue an expansive monetary policy and forex interventions it said were vital to cushion the impact of the coronavirus pandemic.

The central bank kept its policy interest rate locked at minus 0.75pc, the world's lowest, and said it remained willing to buy foreign currencies "more strongly", as unanimously forecast by economists in a Reuters poll.

SNB Chairman Thomas Jordan said the central bank had made "considerable foreign exchange purchases this year," but declined to give details on the level of interventions during the second half of the year.

The SNB said the interventions were necessary to relieve pressure on the franc, which has attracted safe-haven inflows during the crisis.

During the first half of 2020, it bought 90 billion Swiss francs ($101.94 billion) worth of foreign currencies, dwarfing the level of interventions in previous years.

Those interventions have brought the SNB into the cross-hairs of the U.S. Treasury, which labelled Switzerland a currency manipulator on Wednesday.

But Chairman Jordan was unrepentant, saying the measures were necessary to stem rising upward pressure on the franc.

"Just to be very clear. The U.S. treasury report has no impact on our monetary policy," Jordan told reporters, rejecting the currency manipulator label.

"Our monetary policy is necessary and legitimate, in fact it's the result of our mandate that we were given by the Swiss people and parliament to maintain price stability," he said. "It is very important that we maintain this price stability in order to avoid a deflation in Switzerland."

The SNB was in "constructive dialogue with our U.S. friends," regarding the situation, he said, and had improved transparency. But there was a limit what the SNB could do to assuage the U.S. criticism, Jordan said.

"Regarding the concept of monetary policy and the actual policy, there's little room for concessions," he said.

The SNB said the second COVID-19 wave had triggered a deterioration in the Swiss economic outlook, at least in the short term, although the latest restrictions on public life had not reduced output as much as earlier in the year.

It now expected Swiss gross domestic product to decline 3pc this year, better than the 5pc drop forecast in September. In its first view for 2021, the central bank said it expects an improvement of 2.5pc to 3pc.

"The recovery thus remains incomplete," Jordan said.

Inflation is still expected to remain sluggish, rising only to 0.2pc in 2022. In its longest-range forecast, the SNB expects a rate of only 0.5pc in the third quarter of 2023, towards the lower end of its 0pc to 2pc target range.

The SNB also said it will take climate change into account in its investments, Jordan said, excluding coal companies from the massive range of holdings it built up during its campaign to restrain the franc.

Analysts expect the SNB to remain undeterred by U.S. pressure and plough ahead with currency purchases.

Jordan himself said they were the only option as the small size and illiquidity of the Swiss bond market meant a programme of quantitative easing in Switzerland wouldn't work.

"It is the right signal to send. An independent central bank should not have to justify its monetary policy decision," said Karsten Junius, chief economist at J.Safra Sarasin.

"With all inflation rates negative and trade-weighted exchange rates higher than a year ago, we don't think that the SNB should pursue a different strategy regarding the FX interventions than it currently does."