Switzerland Monetary Policy June 2016


Central Bank maintains three-month Libor target range in June

At its 16 June meeting, the Swiss National Bank (SNB) decided to maintain the target range for the three-month Libor at between minus 1.25% and minus 0.25%. The decision met market expectations. Moreover, the Bank left the interest rate on sight deposits on hold at minus 0.75%. The SNB continues to see the negative interest rates as reasonable considering the overvalued franc and its impact on inflation and the domestic economy. The Bank also reiterated that it will remain vigilant regarding foreign exchange developments and will continue to intervene in the FX market in order to ease pressure on the currency.

Regarding the domestic economy, monetary authorities commented that Switzerland’s GDP moderated significantly in the first quarter after robust growth in the fourth quarter of 2015. While growth in 2015 as a whole was disappointing, the Central Bank does not see the result from Q1 as a sign of a further deterioration and stated that the gradual improvement in the international economies is buttressing an acceleration this year. The Bank added that, “exports are likely to continue to recover, and this should stimulate corporate investment and have a positive impact on the labor market.” On a more precautionary note the Bank highlighted the potential turbulence emerging from the imminent UK referendum European Union membership. The Central Bank left its growth forecast for 2016 unchanged at between 1.0% and 1.5%.

The SNB stated that inflationary pressures increased somewhat due to the increase in oil prices since the last meeting in March and the moderate but steady recovery of the global economy. As a consequence, it increased its forecast for the annual variation in consumer prices for 2016 from -0.8% in March to -0.4% in June. For 2017, the SNB expects the annual variation of consumer prices to turn positive and average 0.3% (March projection: +0.1% year-on-year).

FocusEconomics Consensus Forecast panelists expect that the Swiss National Bank will stay put in 2016, with interest rates remaining unchanged at the current range of between minus 1.25% and minus 0.25%.

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Switzerland Monetary Policy Chart

Switzerland Monetary Policy June 2016 1

Note: 3-month Swiss Franc LIBOR target in %.
Source: Swiss National Bank (SNB).

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