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Switzerland Monetary Policy September 2018

Switzerland: SNB stands pat in September on stronger franc; downgrades 2019 inflation outlook

The Swiss National Bank (SNB) maintained the target rate for the three-month Libor at between minus 1.25% and 0.25% at its 21 September meeting. In addition, the interest rate on sights deposits was left unchanged at minus 0.75% and the Bank reaffirmed its commitment to intervening in the forex markets to buffer against further appreciation of the Swiss franc. The decision was widely in line with market expectations. The three-month Libor has been left at its current range since January 2015.

The Bank’s decision was predominately determined by developments in the foreign exchange markets, with the Bank describing the situation as “fragile”. The franc has appreciated significantly against the euro since the last monetary policy meeting on 21 June amid escalating trade tensions between the U.S. and China and political uncertainty in some countries, which have made investments denominated in Swiss francs more attractive. The SNB considers the currency to be “highly valued” in spite of the current expansionary monetary stance. Furthermore, the Bank noted that the inflation outlook for 2018 was unchanged from June’s forecast of average inflation of 0.9%, while the 2019 forecast was cut to 0.8% average inflation (June’s inflation forecast: 0.9%).

Since monetary policy normalization would cause the franc to appreciate further, which would weigh on export-oriented sectors and thus, economic growth, it is likely the Bank will continue to leave the interest rates steady at low levels for the foreseeable future.

The next monetary policy meeting is scheduled for 13 December.

Switzerland Interest Rate Forecast

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