SNB Keeps Intervention Threat as Key Interest Rate at Record Low
Thursday, 15 March 2018 15:59 WIB | FISCAL & MONETARY |SNB,Bank Sentral Swiss,

Switzerland's central bank kept interest rates at rock bottom and reiterated its intervention threat, sticking with a policy that's helped it to weaken its currency.

The Swiss National Bank said the franc remains œhighly valued against the euro on Thursday and said its current policies remain œessential. The decision for all monetary tools to remain unchanged was widely anticipated.

While economic growth in Switzerland and in the surrounding euro area has strengthened, price pressures remain sub par, and the SNB doesn™t want to do anything that would boost the franc and undermine its efforts to lift inflation.

But the Swiss decision to stand pat is in contrast to many other central banks. The Federal Reserve may raise interest rates again next week, the Bank of England has signaled faster tightening ahead, and even the European Central Bank recently shifted its guidance, edging it modestly closer to the exit from stimulus.

œThe situation in the foreign exchange market is still fragile and monetary conditions may change rapidly, the SNB, led by President Thomas Jordan, said in a statement.

Switzerland finished 2017 with solid growth of 0.6 percent in the fourth quarter, supported by an improving global economy and a weaker franc. The currency dropped 8 percent against the euro last year, helping long-blighted exporters.

Yet signs are mounting that in the euro area, momentum may have lost pace in recent weeks -- which would have a knock-on effect on Switzerland -- and U.S. plans to slap tariffs on steel and aluminum imports have the potential to incite countermeasures from other countries and dent confidence.

The SNB, which has had a deposit rate of minus 0.75 percent since early 2015, sees growth of around 2 percent this year, unchanged from its previous prediction.

Inflation will average 0.6 percent this year and 0.9 percent in 2019, the SNB said. That compares to its December forecast of 0.7 percent and 1.1 percent respectively. The central bank also issued a first take on full-year 2020 inflation, expecting it at 1.9 percent.

Source: Bloomberg

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