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CH: SNB Monetary Policy Assessment
| Consensus | Consensus Range | Actual | Previous | |
| Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| Level | 0.0% | 0.0% to 0.0% | 0.0% | 0.0% |
Highlights
The Swiss National Bank kept interest rates at zero in its latest Monetary Policy Assessment. Today's decision matches that of the median of an Econoday survey of economists' forecasts.
With current geopolitical environment, the SNB got right to the point saying that given the conflict in the Middle East the SNB's willingness to intervene in the foreign exchange market has increased. The central bank went on to say it would work to counter a rapid and excessive appreciation of the Swiss franc, which would jeopardize Swiss price stability.
In conjunction, the SNB raised its inflation forecast for the coming quarters and for this year. In December, the forecast was for 0.1 percent inflation, which the bank raised in its March forecast to 0.2 percent. For the second quarter, the forecast is for 0.5 percent after initial expectations for 0.2 percent.
The third and fourth quarters are expected to see inflation rise to 0.6 percent after respective increases of 0.3 percent and 0.5 percent. For this year, inflation is expected to average 0.5 percent according to the March forecast, up from 0.3 percent in December. However, for 2027, the December forecast of 0.6 percent has changed to 0.5 percent in March.
The heightened inflation outlook will spillover into the broader economy, with the outlook becoming more uncertain, with global economic growth likely to temporarily slow somewhat. The SNB said the trade policy outlook remains uncertain and that potential supply chain disruptions could also have a potential impact.
While inflation is certain to pick up with the situation in the middle east, it remains relatively subdued in Switzerland. Moreover, the strong Swiss franc will help mitigate some of the pressures from imported inflation. The broader concern will be the slowdown in economic activity.
The Swiss economy is particularly dependent on the chemicals industry which could see input prices for crucial industrial chemicals rise significantly. For the coming meetings, the SNB will likely be reluctant to move interest rates into negative territory and instead focus on the foreign exchange markets.
Market Consensus Before Announcement
The bank is expected to keep rates at zero with fx intervention its tool of choice to hold down the rising Swiss franc.
Definition
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 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.
Description
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.