CH: SNB Monetary Policy Assessment

Thu Jun 18 02:30:00 CDT 2015

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

As expected, the SNB announced no changes to key interest rates at its June Monetary Policy Assessment. The target range for 3-month CHF Libor was left at minus 1.25 to minus 0.25 percent with the deposit rate at minus 0.75 percent. Although it opted to abandon the EUR/CHF1.20 minimum exchange rate target in January, the central bank also indicated that would remain active in the foreign exchanges as needed to counter what it regards as the excessive overvaluation of the local currency.

The new inflation forecasts differ little from the last projections made in March. Hence, on the basis of unchanged interest rates, CPI inflation is seen holding at its current minus 1.2 percent annual rate through the third quarter of 2015 before rising slowly to end next year at minus 0.1 percent. A move back above zero is not expected until the second quarter of 2017, in line with the March prediction.

However, in respect of some stronger than anticipated economic data of late, real GDP growth forecasts for this year and next have been revised up marginally to minus 1.0 percent and minus 0.4 percent respectively. Even so, the economy is not seen expanding again until the second half of 2015.

There is little fresh information in today's announcement which essentially just points to more of the same from the SNB over coming months. The central bank is clearly unhappy with the existing negative interest rate regime but with deflationary pressures still very marked and the CHF uncomfortably firm, it has little choice. Since March EUR/CHF has at least stabilised around the CHF1.05 level and, as today's merchandise trade data indicate, Swiss exporters have adjusted relatively well to the loss of competitiveness, Nonetheless, the monetary authority patently sees the currency as significantly overvalued and would relish any appreciation by the euro.

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.