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Switzerland Monetary Policy June 2018

Switzerland: SNB leaves rates unchanged in June on stronger franc, as safe-haven fears intensify

On 21 June, the Swiss National Bank (SNB) met market expectations and held the target range for the three-month Libor unchanged at between minus 1.25% and minus 0.25%. Moreover, the Bank held the interest rate on sight deposits steady at minus 0.75% and reiterated its commitment to intervene in the forex markets when necessary to weaken the Swiss franc. With June’s decision, the three-month Libor has been kept on hold for more than three years—since January 2015.

The latest monetary decision came against a backdrop of heightened international uncertainty, which has seen the currency strengthen against the euro over the last month. The exchange rate has seen little change compared to the time of the last meeting, held in March and “remains highly valued”, according to the Bank, despite the current loose monetary stance. Political uncertainty in Europe and the escalating war of words between China and the United States over tariffs have made investments denominated in Swiss francs more attractive. The SNB considers that normalizing monetary policy would cause the currency to appreciate and weigh on export-oriented sectors.

The SNB mentioned “potential international tensions and protectionist tendencies” as one of the most notable downside risks to the inflation outlook, suggesting that interest rates will remain on hold for the foreseeable future in order to avoid a sharp strengthening of the franc and to maintain stability in the forex market.

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