Switzerland: Central Bank leaves three-month Libor target range
December 15, 2016
At its 15 December 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%, as markets had expected. Moreover, the Bank left the interest rate on sight deposits at minus 0.75%. The Bank reconfirmed that its main goals were stabilizing the price environment and supporting economic activity. To achieve these, the SNB is keeping interest rates negative and is willing to intervene in the foreign currency market. According to the Bank, the franc is still significantly overvalued and it is therefore attempting to reduce the attractiveness of Swiss franc-denominated positions.
Regarding domestic price developments, the SNB indicated that inflation in Switzerland was lower than expected in October and November. Though the Bank confirmed its forecast for consumer prices to average a decline of 0.4% in 2016, it downgraded its inflation forecasts for 2017 and 2018. Next year, the SNB expects the annual variation in consumer prices to turn positive and average 0.1% (September projection: +0.2% year-on-year). For 2018, average inflation should be at 0.5%, down from the 0.6% projected in September.
In the global economy, the Bank saw activity picking up steam in Q3 and foresees the gradual recovery continuing next year. However, the SNB also highlighted the heightened number of risks in the developed world, such as political shifts in Europe and the United States and the uncertain consequences of the Brexit negotiations, which could hamper the global economy.
The Swiss economy is expected to follow the global trend and continue its moderate growth next year. Although quarterly GDP had expanded a meagre rate in Q3, the monetary authorities commented that the latest indicator showed an improvement in Q4. In addition, the mortgage and real estate market has stabilized in recent months, which reduces a potential downside risk, though some imbalances remain and the Bank will continue to monitor developments closely. Against this backdrop, the SNB’s growth forecast for 2016 was confirmed at 1.5% and extended to 2017, where GDP will also grow 1.5%.