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Switzerland Monetary Policy December 2021

Switzerland: SNB maintains ultra-loose monetary policy in December

At its meeting on 16 December, the Swiss National Bank (SNB) left its policy rate and the interest rate on sight deposits at minus 0.75%—the world’s lowest. Moreover, the Bank reiterated its continued willingness to intervene in foreign exchange markets “as necessary” to temper the value of the franc.

The Bank’s move was aimed at supporting the economy in the face of uncertainty over the Omicron variant, and avoiding further upward pressure on the franc, which has appreciated sharply against the euro this year. Moreover, although price pressures in Switzerland have risen in recent months, they remain much lower than in most European peers; consumer price inflation is still comfortably in line with the Bank’s target of less than 2% inflation. As such, the SNB was under little pressure to hike.

Looking ahead, the SNB is expected to maintain its extremely expansionary stance for a prolonged period in the face of mild price pressures, and in a bid to tame the currency.

As Charlotte de Montpellier, economist at ING, said:

“Eyeballing the SNB’s inflation forecasts tells us that we should not expect any rate hikes in Switzerland. Even though it has revised its forecast for 2021 slightly upwards (from 0.5% to 0.6%) and for 2022 (from 0.7% to 1%), the SNB’s forecast for 2023 is still 0.6%. In this context, there is little reason to consider a rate increase. One can imagine that when other central banks start to raise rates, the pressure on the Swiss franc will ease a bit, which could push inflation up slightly. But we think that’s a story for 2023 at the earliest.”

The next monetary policy meeting is scheduled for 24 March.

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