Switzerland: Central Bank leaves three-month Libor target range
March 16, 2017
On 16 March, 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%. These rates have been in place since January 2015.
According to the Bank, the franc is still significantly overvalued, therefore it is attempting to reduce the attractiveness of Swiss franc-denominated positions. As a result, the SNB is keeping interest rates negative and continues to intervene in the foreign currency market. Moreover, GDP growth was lower than the Bank expected in the fourth quarter and the economy is only slowly picking up steam, as exports are still subdued. Regarding prices, inflation picked up recently, but inflationary pressures should be transitional. Moreover, the housing market has been broadly steady in the fourth quarter of 2016 and the risk of overheating is not imminent.
Going forward, the Bank is expected to keep monetary policy expansionary. For Switzerland, being a small open economy and strongly exposed to international economic developments, the downside risks of protectionist policies in Europe and the United States are significant. With current signs indicating a timid acceleration, the Bank kept its forecast for GDP growth this year steady at 1.5%. On the back of higher inflation in recent months, SNB increased the inflation forecast for 2017 from 0.1% projected in December to 0.3%, yet revised the inflation forecast for 2018 downwards, from 0.5% to 0.4%.