CH: SNB Monetary Policy Assessment

Thu Dec 14 02:30:00 CST 2017

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

The SNB's new Monetary Policy Assessment (MPA) leaves an unchanged outlook for central bank policy. The target corridor for 3-month CHF LIBOR remains at minus 1.25 percent to minus 0.25 percent and the deposit rate at minus 0.75 percent. Although the slide in the CHF since the middle of the year has eased some overvaluation fears, the monetary authority still reaffirmed its commitment to intervene as necessary to prevent unwanted appreciation. There are no surprises here.

The Bank's new economic forecast paints a slightly more upbeat picture than in September. Real GDP growth this year is only a little firmer than the previous call at 1.0 percent but 2018 is put at a relatively solid 2.0 percent. At the same time, the inflation projection has been revised up over the near-term in respect of increased oil prices and the weaker exchange rate. However, the more important longer-term projections are virtually unchanged. Hence, for 2017, the rate has been nudged a tick higher to 0.5 percent and in 2018 raised 0.3 percentage points to 0.7 percent. The 2019 forecast stays at just 1.1 percent.

Today's policy report underlines the importance of CHF weakness to the improvement in the Swiss economic picture. However, the benefits of a weaker currency have helped to mask what remains a relatively sluggish recovery in domestic demand. To this end, there is unlikely to be any change in SNB interest rates until well into 2018 at the very earliest.

The Swiss National Bank (SNB) usually announces any changes to its monetary stance at its quarterly Monetary Policy Assessment. However, adjustments can be made at any time. Since 2000 monetary policy has consisted of the following three elements: a definition of price stability, a medium-term inflation forecast and †at operational level †a target range for a reference interest rate, the three-month Swiss franc Libor (London Interbank Offered Rate). The SNB attempts to secure an annual inflation rate as specified by the consumer price index (CPI) of less than 2 percent. In recent times this has involved sizeable intervention in the foreign exchange market to prevent appreciation of the Swiss franc although since January 2015 there has been no explicit exchange rate target.

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.