The President of Switzerland's central bank has said that its ultra-loose monetary policy remains 'absolutely necessary' after it announced its commitment to keeping interest rates in negative territory on Thursday.
At its quarterly policy update held in the Swiss capital Bern, the Swiss National Bank said that it would continue with its monetary policy expansion as part of continued efforts to tackle low inflation and negative output.
The SNB's target range for three-month Swiss franc LIBOR was held at -1.25 percent to -0.25 percent, and its sight deposit rate was held at 0.75 percent.
"We still have very low inflation – close to zero – we have a negative output gap and we still have a Swiss franc that is significantly overvalued," President Thomas Jordan told CNBC shortly after the announcement.
The continued expansionary measures were largely anticipated by analysts, especially given the European Central Bank's (ECB) decision last week to hold interest rates at 0.0 percent. The SNB is dependent on ECB's pace of monetary policy and may look at normalizing its policy once President Mario Draghi decides to start rolling back the bank's asset purchase program.
Though geopolitical risks across Europe have steadied somewhat over recent months after a raft of contentious elections, Jordan said that the bank would continue to intervene in foreign exchange markets where necessary to combat overvaluation of the Swiss franc, which is often seen by investors as something of a safe haven during times of geopolitical risk.
"It's true that the political situation improved in Europe; that will hopefully diminish the pressure on the Swiss franc to some extent. But we follow exactly the situation in the foreign exchange market, we look at the pressure, and then we decide what to do in foreign exchange interventions," said Jordan.
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 followed suit with the ECB, trimming its inflation targets. The Swiss central bank kept its 2017 inflation forecast steady at 0.3 percent but trimmed its 2018 outlook to 0.3 percent from 0.4 percent and its 2019 forecast to 1 percent from 1.1 percent.
Meanwhile, on Wednesday in the U.S. the Federal Reserve pointed to the country's improved economic outlook, hiking interest rates by 0.25 percent for the second time this year.