CH: SNB Monetary Policy Assessment

Highlights

The Swiss National Bank left its benchmark rate unchanged at 0.0 percent, in-line with the median of an Econoday survey of economists' forecasts.

While inflation has been higher in recent months due to higher energy prices, the SNB noted that over the medium-term, the outlook is for the most part unchanged from its assessment in March. It judges policy to be appropriate in order to maintain price stability and support economic development.

For this year, the SNB forecasts inflation to reach 0.6 percent annually, an 0.1 percentage point increase from the March forecast of 0.5 percent. The same is true for its 2027 forecast.

In terms of the overall economy, the SNB said the Swiss economy has been resilient given the conflict in the Middle East, and expects it to grow 1.0 percent this year and 1.5 percent next year. It cites developments in the global economy as the major risk factor, particularly if the situation in the Middle East flares up again which could lead to further appreciation of the Swiss Franc.

As before the SNB said it has an increased willingness to intervene in the foreign exchange markets should there be an excessive appreciation.

Finally, the SNB said that US trade policy continues to be a source of uncertainty.

Today's announcement is no surprise, and given the uncertainty of the US trade policy and the situation in the Middle East, the Swiss economy has weathered the situation well.

Market Consensus Before Announcement

No change is the call.

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.

Recommended for you

Upcoming Events