Switzerland: Swiss National Bank leaves rates unchanged, emphasizes FX cap
June 19, 2014
At its 19 June monetary policy meeting, the Swiss National Bank (SNB) decided to keep the three-month Libor target at the historically-low range of 0% to 0.25%, in a decision that was unanimously expected. The SNB also reaffirmed its commitment to maintaining the 1.20 CHF per EUR cap, stating that the minimum exchange rate, “continues to be the right tool to avoid undesirable tightening of monetary conditions in the event of renewed upward pressure on the Swiss franc.”
In the accompanying statement, the Central bank underlined that economic growth picked up in the first quarter, following a period of weak growth in the fourth quarter of last year. However, monetary authorities recognized that, “production capacities are still not fully utilized overall.” Consequently, the Bank expects that economic activity will improve, although gradually, in the coming quarters. Regarding price developments, the SNB stated that although inflation was higher than expected in May, inflationary pressures remain contained. For the medium- to long-term, the Central Bank foresees lower inflation expectations.
The Central Bank concluded that downside risks to the Swiss economic outlook persist. Weaker-than-expected growth in major economies, geopolitical tensions, and pressures to consolidate public sector finances in the Eurozone might dampen the recovery of the global economy which, “would be detrimental to economic growth in Switzerland.”
In the same statement, monetary authorities pointed out that, as of 30 June, higher capital requirements for mortgage loans on residential property will be applied. The measure comes as a result of higher sector countercyclical capital buffers (CCB). Despite the slower momentum registered recently in the markets, the Bank did not see evidence of, “any sustainable easing.”
Author: Ricardo Aceves, Senior Economist