Switzerland: Central Bank maintains the three-month Libor target range unchanged in June
June 18, 2015
At its 18 June 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 was in line with market expectations. In addition, the interest rate on sight deposits with the SNB was also left unchanged at minus 0.75%. The SNB continues to see the negative interest rates as reasonable considering the appreciation of the currency and its impact on inflation and economic developments.
Regarding the domestic economy, monetary authorities commented that, in the first quarter, GDP recorded the steepest contraction in six years. The disappointing result was due to weak exports, which suffered from an appreciation of the Swiss franc as well as from a downturn in global trade. Conversely, domestic demand recorded robust performance in Q1. Looking forward, the Bank added that, “the global economic recovery is likely to lead to a gradual upturn in demand for Swiss products; this will cushion the impact of the exchange rate shock somewhat.”
Regarding consumer prices, the SNB stated that the annual variation in consumer prices will most likely move back into positive territory at the beginning of 2017. This increase will mainly reflect a gradual recovery in oil prices as well as a depreciation of the franc. As a result, the Bank revised up its inflation forecast for both this year and next by 0.1 percentage points. Now it expects consumer prices to drop 1.0% in 2015 and 0.4% in 2016.
Author: Dirina Mançellari, Senior Economist