Switzerland Leaves Rates on Hold, Cuts Growth Forecasts


The Swiss National Bank left its deposit interest rate at a record low of -0.75 percent on September 14th 2017 as widely expected, aiming to stabilize the inflation and support growth. Policymakers also noticed that the Swiss franc recent weakness against the euro and appreciation against the dollar has helped to reduce the overvaluation of the currency although it still remains highly valued. Growth forecasts for 2017 were lowered to under 1 percent from near 1.5 percent while inflation is seen slightly higher at 0.4 percent from 0.3 percent.

The target range for three-month libor was also kept between -1.25 percent and -0.25 percent. 

Excerpts from the SNB press release:

Since the last monetary policy assessment, the Swiss franc has weakened against the euro and appreciated against the dollar. Overall, this development is helping to reduce, to some extent, the significant overvaluation of the currency. The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential in order to reduce the attractiveness of Swiss franc investments and thus ease pressure on the currency.

Owing to the exchange rate situation, the conditional inflation forecast has been revised upwards slightly compared to June. For the current year, the forecast has risen marginally to 0.4%, from 0.3% in the previous quarter. For 2018, too, the SNB anticipates an inflation rate of 0.4%, compared to 0.3% last quarter. For 2019, it now expects inflation of 1.1%, compared to 1.0% last quarter. The conditional inflation forecast is based on the assumption that the three-month Libor remains at –0.75% over the entire forecast horizon.

In Switzerland, an analysis of the available economic indicators suggests that the moderate recovery is continuing. The Swiss economy is benefiting from the consolidation of global economic activity. Renewed momentum in goods exports is supporting industrial activity. Capacity utilisation is thus on the rise and companies are also becoming increasingly willing to invest. The situation on the labour market is gradually improving.

The recovery is less evident in the quarterly GDP estimates. Owing to weak GDP momentum in late 2016/early 2017, the current year is likely to see growth of just under 1.0%. At its monetary policy assessment in June, the SNB was still expecting growth of roughly 1.5%. The lower forecast is attributable to the weak GDP figures for the previous quarters. 

Overall, imbalances on the mortgage and real estate markets persist. While growth in mortgage lending remained relatively low in the second quarter, risks in the residential investment property segment increased. In addition, following a period of stabilisation, prices in the owner-occupied residential property segment rose again slightly. The SNB will continue to monitor developments on these markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer.

Switzerland Leaves Rates on Hold, Cuts Growth Forecasts


SNB | Joana Taborda | joana.taborda@tradingeconomics.com
9/14/2017 7:49:20 AM