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Switzerland Monetary Policy September 2020

Switzerland: SNB maintains ultra-loose monetary policy in September

At its meeting on 24 September, the Swiss National Bank (SNB) left its policy rate and the interest rate on sight deposits at minus 0.75%, as widely expected by market analysts. Moreover, the Bank highlighted its continued willingness to intervene strongly in foreign exchange markets as the Swiss franc remains highly valued in the wake of the coronavirus pandemic, which has raised safe-haven demand.

The hold came amid a highly uncertain outlook, with the current deflationary environment and tepid economic activity driving the SNB’s decision. With consumer prices falling for the seventh consecutive month in August amid low oil prices, a strong franc and weak domestic demand conditions, the Bank reaffirmed its ultra-accommodative policy stance. Furthermore, the accommodative monetary policies enacted by other major central banks—namely the ECB and Federal Reserve—forced the SNB to keep its own rates low in order to avoid unwanted currency appreciation.

Against this backdrop, the Bank estimated a fall of around 5.0% in GDP this year, which is up from the 6.0% expectation at its previous meeting back in June. The SNB increased its consumer price forecasts slightly in September, and now projects softer deflation for this year, but sees inflation returning next year (2020: -0.6%; 2021: 0.1%), (June meeting: 2020: -0.7%; 2021: -0.2%). As such, the Bank retained its dovish tone, stressing that “expansionary monetary policy is necessary to ensure appropriate monetary conditions in Switzerland and to stabilise economic activity and price developments”. The majority of our panelists see the Bank holding fire this year and next, and currently see negative rates through the forecast horizon which ends in 2024.

Commenting on the monetary policy outlook, Charlotte de Montpellier, an economist at ING, noted:

“It is also interesting to note that the Swiss central bank does not even communicate about a possible revision of its monetary policy strategy like the Federal Reserve has done, which is now targeting an average inflation rate of 2%, or as the ECB, whose revision is in progress. Clearly, the SNB is not there yet or does not wish to communicate about this (let’s not forget that the SNB has always preferred surprise decisions in the past). Nevertheless, it is possible that the SNB may have to undertake such an exercise in the coming years. For now, it may wish to wait and see what emerges from the ECB’s monetary policy review.”

The next monetary policy meeting is scheduled for 17 December.

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