Switzerland: Central Bank maintains the three-month Libor target range unchanged
March 19, 2015
At its 19 March meeting, the Swiss National Bank (SNB) decided to maintain the target range for the three-month Libor unchanged at between minus 1.25% and minus 0.25%. The decision met market expectations. In addition, the interest rate on sight deposits with the SNB was also left unchanged at minus 0.75%. The Bank stated that it is reasonable to keep interest rates in negative territory taking in consideration the recent appreciation of the currency and its impact on inflation and economic developments.
Regarding the domestic economy, monetary authorities commented that, in the last quarter of 2014, the economy performed better than expected. On the demand side, the main drivers of the expansion in Q4 were consumption and equipment investment. On the other hand, exports of goods and services stagnated. The Central Bank revised its GDP forecast for 2015 this month. Now the Bank expects the economy to grow just under 1.0%, which is well below the 2.0% growth forecast in December. The monetary committee cited the recent appreciation of the franc as the main reason behind the downgrade.
Regarding consumer prices, the SNB stated that inflation will most likely hover in negative territory for a short period of time due to the sharp fall in oil prices and the appreciation of the currency since the minimum exchange rate was discontinued. As a result, the Bank revised down its inflation forecast for both this year and the next and now expects consumer prices to drop 1.1% in 2015 and 0.5% in 2016. These revised forecasts are lower than the 0.1% decrease for 2015 and 0.3% increase for 2016 that the Bank had projected in December.
Author: Dirina Mançellari, Senior Economist