Swiss Central Bank Retains Negative Rates; Expects Inflation To Exceed Target
December 14 2017 - 1:56AM
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The Swiss National Bank maintained its expansionary monetary
policy stance on Thursday and reaffirmed its commitment to remain
active in the foreign exchange market when necessary although the
franc weakened against the euro and the US dollar.
Further, the bank forecast inflation to exceed its target in
three years' time due to the weaker currency.
The interest rate on sight deposits at the SNB was retained at
-0.75 percent and the target range for the three-month Libor was
kept unchanged between -1.25 percent and -0.25 percent, the bank
said in a statement.
The overvaluation of the Swiss franc has continued to decrease,
yet the franc remains highly valued, the bank noted. The
depreciation of the Swiss franc reflects the fact that safe havens
are currently less sought after.
Yet, the SNB saw this development as still fragile. Therefore,
despite the easing of the situation, the negative interest rate and
the central bank's willingness to intervene in the foreign exchange
market as necessary remain essential.
A renewed appreciation of the franc would still be a threat to
price and economic developments, the bank said.
SNB President Thomas Jordan said the expansionary monetary
policy remains appropriate in order to underpin the recovery, and
thereby ensure price stability, while taking due account of
economic developments.
The SNB will be unwilling to raise interest rates until after
the European Central Bank has begun its process of policy
normalization, Jessica Hinds, an economist at Capital Economics,
said.
The economist expects the SNB to see how the ECB's tightening
progresses before following suit and expect Swiss interest rates to
remain on hold until early 2020.
In its Winter forecast, released on Thursday, the KOF institute
said that the negative interest phase will be slowly coming to an
end. The think tank expects a first rise in long-term interest
rates next year and in 2019 a slow increase in the still negative
short-term interest rates.
KOF forecast the economy to grow 2.3 percent in 2018 and by 1.7
percent in 2019.
The recovery in the Swiss economy looks set to continue in the
coming months, the central bank noted. For 2018, the SNB forecast
GDP growth of around 2 percent, compared to 1 percent in 2017.
The bank expects 0.5 percent inflation instead of 0.4 percent.
For 2018, inflation forecast was revised up to 0.7 percent from 0.4
percent, while the projection for 2019 was maintained at 1.1
percent.
Inflation is forecast to rise to 2.1 percent in the third
quarter of 2020, which is above the central bank's goal of below 2
percent.
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