CH: SNB Monetary Policy Assessment

Thu Dec 10 02:30:00 CST 2015

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

The SNB's fourth quarter Monetary Policy Assessment saw no change in the minus 1.25 percent to minus 0.25 percent target corridor for 3-month CHF Libor. The deposit rate was also left unchanged at minus 0.75 percent.

Today's announcement was in line with the majority call in financial markets although there was a significant minority anticipating a 25 basis point cut. In practice, the EUR's positive reaction to last week's surprisingly limited easing moves by the ECB was seen by the Swiss central bank as providing the room it needed to keep its powder dry, at least for now. That said, the SNB again emphasised its perceived overvaluation of the CHF and its willingness to continue to intervene in the FX markets as and when necessary to prevent any additional appreciation.

In fact the update on the SNB's economic outlook showed no changes of significance from September. Real GDP is still seen expanding 1.0 percent this year before accelerating to 1.5 percent in 2016. Forecast inflation remains at minus 1.1 percent this year and minus 0.5 percent in 2016 and is just a tick lower at 0.3 percent in 2017. Against this backdrop the decision to leave policy on hold would seem fully justified.

Looking ahead, much will depend upon the performance of EUR/CHF. Since abandoning the CHF1.20 lower bound in January the central bank must have been cautiously content with the way in which its currency has traded in what has generally been a depreciating EUR environment. Nonetheless, it would clearly like to have a weaker local currency and today's statement suggests that it sees a negative deposit rate as working towards that end. Accordingly, near-term risks on official interest rates remain firmly on the downside.

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.