Switzerland: Central Bank leaves rates unchanged again, emphasizes FX cap
September 18, 2014
At its 18 September monetary policy meeting, the Swiss National Bank (SBN) decided to maintain the three-month Libor target rate at the historically-low range of 0% to 0.25%. The Bank’s vote was expected by the markets. The SNB repeated that it will continue to intervene in the foreign exchange market to prevent the Swiss franc from surpassing 1.20 CHF per EUR, pointing out that the exchange rate, “remains the key instrument to avoid an undesirable tightening of monetary conditions.”
The Central Bank underlined that monetary authorities have observed a deterioration in global economic conditions since the meeting in June. The Bank stated that, although the U.S. economy rebounded in the second quarter following the weather-related soft patch in the first quarter, the Eurozone economy has experienced a notable deterioration since then. Therefore, the Bank expects weaker global economic growth in the months to come and also emphasized that upside risks to the global outlook reappeared, mainly due to recent geopolitical tensions, which are likely to tame confidence among investors and consumers. Domestically, the Bank recognized that economic growth in the second quarter was weaker than expected and, therefore, trimmed its GDP growth forecasts for this year, from 2.0% to 1.5%.
Regarding developments in consumer prices, the Central Bank stated that inflation remains low, while reckoning that, for mid-2015 and onwards, it expects lower inflationary pressures, mainly due to the deterioration in the global economy and slower growth in the country. The Bank added that, “for Switzerland, the risk for deflation has thus increased again.”
Author: Ricardo Aceves, Senior Economist