Swiss National Bank keeps ultra-loose policy in place

A cyclist rides past the Swiss National Bank's headquarters in Bern, Switzerland.
Gianluca Colla | Bloomberg | Getty Images
A cyclist rides past the Swiss National Bank's headquarters in Bern, Switzerland.

The Swiss National Bank maintained its ultra-loose monetary policy on Thursday despite an easing in political risks across Europe which could reduce upward pressure on the strong Swiss franc.

The SNB kept its target range for three-month Swiss franc LIBOR at -1.25 percent to -0.25 percent, and the rate it charges on sight deposits at -0.75 percent, as expected in a Reuters poll of economists.

It said it remained committed to negative interest rates and currency market interventions to rein in the Swiss franc, which it said remained "significantly overvalued".

The SNB said the global economy was strengthening as expected and labour markets were picking up while inflation remained modest in most advanced economies.

"Against this background, monetary policy in Japan and the euro area, in particular, is likely to remain very expansionary. In the U.S., monetary conditions are expected to gradually normalise," it said in its quarterly policy review.

"In its new baseline scenario for the global economy, the SNB anticipates that economic developments will remain favourable. The cautiously optimistic baseline scenario continues to be subject to considerable downside risks; this is due to political uncertainty and structural problems in a number of advanced economies," it said.

The central bank has kept rates frozen since it abandoned its cap on the franc versus the euro two and a half years ago, a move which set the franc soaring in value against the single currency.

The SNB also said it still expected Swiss economic growth of roughly 1.5 percent, as forecast in March.

The central bank has also been closely observing political developments around the world, and responding to uncertainty in the euro zone by intervening in the currency markets to meet demand for the safe-haven franc.

Data has indicated the bank has bought more than 47 billion Swiss francs ($48.4 billion) of foreign currency this year as it stepped up its currency interventions, although the amounts have been scaled back in recent weeks.

"As long as the process of political stabilisation continues in Europe, the need for foreign exchange interventions should diminish. But for the SNB to raise its policy rate, EUR/CHF is probably still much too low," Credit Suisse analyst Maxime Botteron said.

The SNB's leeway has been limited by the continuation of the European Central Bank's massive bond-buying programme which has weakened the value of the euro.

Swiss inflation has also remained weak. The SNB kept its 2017 inflation forecast of 0.3 percent but trimmed its 2018 outlook to 0.3 percent from 0.4 and its 2019 forecast to 1 percent from 1.1.

The U.S. Federal Reserve pressed ahead on Wednesday with plans to shrink its $4.5-trillion portfolio, mapping out a very gradual approach to shedding assets that allows it to begin the tricky process as soon as September.