Switzerland: Swiss National Bank keeps expansionary monetary policy unchanged
June 15, 2017
On 15 June, the Swiss National Bank (SNB) decided to maintain the target range for the three-month Libor at between minus 1.25% and minus 0.25%, as markets had expected. Moreover, the Bank left the interest rate on sight deposits at minus 0.75%. These rates have been in place since January 2015.
According to the SNB, the franc is still significantly overvalued, which is the reason behind the Bank’s expansionary monetary policy and massive foreign exchange market interventions. This is despite a slight weakening of the franc against the euro in recent weeks due to a perceived lessening of political risks in the European Union, following presidential elections in France. Moreover, the strengthening economic momentum seen globally has only partially spilled over to the Swiss economy. Regarding prices, inflation has declined in the past months after resurfacing in late 2016; maintaining such a loose monetary stance should help prop up inflation and avoid a return to falling prices.
Going forward, the Bank is expected to maintain its expansionary monetary policy. The economy is seen gaining traction, as suggested by improving recent economic indicators, and the Bank kept its 2017 growth estimate at 1.5%. However, demand-pull pressures are limited, with the SNB leaving its inflation forecast for this year at 0.3% and revising down its 2018 forecast from 0.4% to 0.3%. Moreover, the SNB is prone to holding fire and taking into consideration the ECB’s position before adapting its monetary policy position; with the ECB’s stance set to remain loose for some time to come, the SNB will likely follow suit.