Excerpt from the Swiss National Bank statement:
The Swiss National Bank (SNB) is maintaining its expansionary monetary policy, thereby stabilising price developments and supporting economic activity. Interest on sight deposits at the SNB remains at –0.75% and the target range for the three-month Libor is unchanged at between –1.25% and –0.25%. The SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.
Since the monetary policy assessment of September 2018, the Swiss franc has depreciated slightly on a trade-weighted basis. This development is primarily due to the strengthening of the US dollar. The franc is virtually unchanged against the euro. Overall, the Swiss franc is still highly valued, and the situation on the foreign exchange market continues to be fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential. These measures keep the attractiveness of Swiss franc investments low and reduce upward pressure on the currency.
The new conditional inflation forecast for the coming quarters is lower than it was in September. This is mainly due to the drop in oil prices. The medium-term inflation forecast is also slightly lower owing to more moderate growth prospects. For the current year, the SNB continues to anticipate inflation of 0.9%. The forecast for 2019 has been revised down from 0.8% to 0.5%. For 2020, the SNB expects inflation of 1.0%, compared with its previous forecast of 1.2%. 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, GDP fell by an annualised rate of 0.9%. Despite this decline, GDP was still 2.4% higher year-on-year thanks to the strong expansion in the previous quarters. A slowdown in GDP momentum was to be expected after several very strong quarters. Furthermore, the decline in GDP is also attributable to temporary factors. An analysis of all the available economic indicators points to momentum weakening slightly but remaining positive. The favourable development on the labour market also continued. Employment increased strongly in the third quarter. The unemployment rate declined again through to November to stand at 2.4%.
The SNB now anticipates slightly lower GDP growth of around 2.5% for 2018 as a whole. As in other countries, economic momentum in Switzerland is likely to weaken somewhat in 2019. The SNB expects a rise of around 1.5% in GDP for the coming year.
Risks are to the downside, as is the case with the global economy. In particular, a sharp slowdown internationally would quickly spread to Switzerland.