Switzerland Monetary Policy March 2016


Switzerland: Central Bank maintains three-month Libor target range in March

March 17, 2016

At its 17 March 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%. The decision met market expectations. Moreover, the Bank left the interest rate on sight deposits on hold at minus 0.75%. The SNB continues to see the negative interest rates as reasonable considering the overvalued franc and its impact on inflation and the domestic economy. The Bank also reiterated that it will remain vigilant regarding foreign exchange developments and will continue to intervene in the FX market in order to support the currency.

Regarding the domestic economy, monetary authorities commented that the Swiss economy expanded 1.7% in the final quarter last year, thus bringing growth for the whole year 2015 to 0.9%. The economy decelerated markedly last year broadly due to the overvalued currency which weighed on exports. The Bank added that, “profit margins are still under pressure at many companies, and the willingness to invest and the demand for labour remain commensurately subdued.” As a result, the SNB now expects the economy to expand between 1.0% and 1.5% this year, which is a deterioration from the 1.5% increase previously projected.

The SNB stated that inflationary pressures remain low as low oil prices and a lackluster global economy are weighing on prices. Nevertheless, it added that the annual variation in consumer prices is expected to turn positive next year. The SNB now projects prices to drop 0.8% this year (December projection: -0.5% year-on-year) before rebounding and increasing 0.1% in 2017 (December projection: +0.3% yoy).

FocusEconomics Consensus Forecast panelists expect that the Swiss National Bank will stay put in 2016, with interest rates remaining unchanged at the current range of between minus 1.25% and minus 0.25%.

Author:, Senior Economist

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Switzerland Monetary Policy Chart

Switzerland Monetary Policy March 2016

Note: 3-month Swiss Franc LIBOR target in %.
Source: Swiss National Bank (SNB).

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