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Switzerland Monetary Policy March 2021

Switzerland: SNB maintains ultra-loose monetary policy in March

At its meeting on 25 March, 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 highlighted its continued willingness to intervene in foreign exchange markets, as the Swiss franc remains highly valued. However, the SNB softened its language, stating it would intervene “as necessary”, as opposed to the last meeting in December, when it said it would intervene “more strongly”.

The Bank’s move was aimed at shoring up economic activity in the face of the ongoing Covid-19 pandemic, avoiding unwanted appreciation of the Swiss franc, and boosting price pressures—consumer prices fell in February in annual terms for the thirteenth straight month.

Looking ahead, the SNB is expected to maintain its extremely expansionary stance for a prolonged period in the face of depressed price pressures. While the Bank revised up its inflation forecasts for this year and next to 0.2% and 0.4% respectively, these rates are likely still too low for the Bank to countenance a reduction in stimulus. Moreover, currency intervention is set to continue as and when required in order to tame any strengthening of the franc.

According to Charlotte de Montpellier, economist at ING:

“It seems clear that we should not expect the SNB to raise its key interest rate in the next few years, contrary to what we can expect elsewhere in the world. Nevertheless, as [the Bank’s] inflation forecasts are positive, we can also rule out a further rate cut in the future, in the absence of a negative shock. -0.75% seems to be the rate level for a long time to come in Switzerland.”

The next monetary policy meeting is scheduled for 17 June.

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