Switzerland: Central Bank left three-month Libor target range
September 15, 2016
At its 15 September 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%, which met market expectations. Moreover, the Bank left the interest rate on sight deposits at minus 0.75%. The SNB stated that the franc is still significantly overvalued and that the negative interest rates are aimed at discouraging franc-denominated investments. On top of maintaining negative interest rates, the Bank confirmed its readiness to intervene in the foreign exchange market.
Regarding the domestic economy, the monetary authorities commented that Switzerland’s GDP grew steadily in the second quarter, but that economic activity was still subpar. For full potential growth to be reached, more industries would need to benefit from the recovery and capacity utilization should be increased. The Bank added that, “the SNB is anticipating a continuation of the recovery. In the second half of the year, however, growth is likely to be more modest than in the first half, partly owing to a temporary weakening of growth in Europe.” The Central Bank updated its growth forecast for 2016 from a range of between 1.0% and 1.5% to approximately 1.5%.
The SNB stated that a more modest outlook for the global economy is reducing inflationary pressures. As a consequence, it confirmed its 2016 forecast for the annual variation in consumer prices at -0.4%. For 2017, the SNB expects the annual variation in consumer prices to turn positive and average 0.2% (June projection: +0.3% year-on-year).