CH: SNB Monetary Policy Assessment

Thu Mar 19 03:30:00 CDT 2015

Consensus Actual Previous
Change 0bp 0bp 0bp
Level -0.75% -0.75% 0.0%

Having abandoned its minimum FX target policy in mid-January the SNB announced no fresh shifts in its monetary stance today. The target corridor for 3-month CHF Libor stays at minus 1.25 percent to minus 0.25 percent with the deposit rate pegged at minus 0.75 percent and the CHF, to all intents and purposes, will continue to float freely. The outcome was in line with most expectations although there was some talk of a possible further 25 basis point cut in key rates with a view to putting a lid on the currency.

However, in response to the currency's sharp appreciation the central bank was forced to make sizeable changes to its economic forecasts. Hence, growth is now put at 1 percent this year, half the rate contained in the December projection, while inflation is slashed to minus 1.1 percent from minus 0.1 percent. Inflation is also expected to remain below zero in 2016; the new forecast of minus 0.5 percent again well short of the previous 0.3 percent call.

Almost inevitably the SNB made noises about the CHF being significantly overvalued and again pledged to intervene as and when it thought appropriate to do so. However, no new minimum EUR/CHF target floor was announced so financial markets were left to speculate about whether or not the central bank has adopted a rumoured informal CHF1.05-1.10 objective band.

Otherwise the latest Monetary Policy Assessment contained little news of note. The central bank is clearly not happy with recent developments but for now looks set to keep official interest rates at current levels while its monitors how the euro responds to the ECB's QE programme. That said, another sustained burst of CHF strength would surely trigger both a new cut in rates and further currency intervention.

The Swiss National Bank usually announces its interest rate policy on a quarterly basis as part of its Monetary Policy Assessment. However, emergency measures can be announced at any time.

The aim of the SNB's monetary policy is to ensure price stability in the medium and long term. By keeping prices stable (2 percent annual inflation rate), the SNB seeks to create an environment in which the economy can fully exploit its production potential. The Bank is required to set its policy to meet the needs of the Swiss economy as a whole rather than the interests of individual regions or industries.

The SNB has traditionally implemented its monetary policy by fixing a target range of 1.0 percentage points at the level deemed appropriate for the three-month Swiss franc Libor. The Bank has then normally sought to hold the rate around the middle of that corridor. However, as a result of strong capital inflows into the local currency prompted by the 2008/09 global downturn, this objective range has been both narrowed and reduced to just 0.0 - 0.25 percent, with a point target of 0.0 percent. In fact, since September 2011 the thrust of policy has been determined largely by the SNB's expressed aim of preventing the CHF strengthening beneath a CHF1.20 floor versus the euro.

The Swiss National Bank publishes its monetary policy assessments on a quarterly basis in March, June, September and December. In these reports it describes the current monetary environment and formulates its monetary policy intentions for the following quarter. It also provides inflation forecasts which help financial markets to formulate of where monetary policy might be headed. Twice a year -- in June and in December -- the Bank holds a media conference. At that time, the Governing Board provides information about the economic situation and comments on its monetary policy.