Swiss cbank holds fire on rates, cuts inflation outlook
ZURICH: Switzerland's central bank left interest rates unchanged at record lows, cut its economic outlook and forecast a longer bout of deflation as cheaper oil and slowing global growth weigh on the economy. The Swiss National Bank now expects consumer prices to rise just 0.1 percent in 2017, barely in positive territory and well within its target of less than 2 percent a year. The SNB kept its target range for three-month Libor in negative territory, between -1.25 and -0.25 percent, in Thursday's quarterly policy assessment, as economists polled by Reuters unanimously predicted.
It also maintained a charge on cash deposits of 0.75 percent and repeated its pledge to intervene in the currency market if necessary to weaken the "significantly overvalued" Swiss franc. A muted response from the franc to the European Central Bank's decision to cut rates and expand asset purchases last week had lessened the SNB's need to act on rates. "As long as the ECB doesn't cut interest rates further, I don't think the SNB will cut rates," said Credit Suisse economist Maxime Botteron. Currency markets showed little immediate reaction to the rate decision.
A rate cut further into negative territory would have drawn more criticism from banks, insurers and pension funds, which have had to pay a deposit charge on some of their cash holdings.
The SNB is using negative rates, coupled with an unspecified amount of foreign currency purchases, to weaken the franc and protect exports to the euro zone, Switzerland's biggest trading partner. The two-pillar approach has helped to weaken the franc against the euro EURCHF=EBS in recent months and take some of the shine off its safe-haven shine. The franc trades at around 1.09 per euro, just over a year after the SNB abruptly abandoned a floor of 1.20.
"The global economic outlook has deteriorated slightly in recent months and the situation on international financial markets remains volatile ... Around the world, manufacturing and trade remained sluggish, contributing to a further sharp fall in oil prices," the SNB said in a statement. The SNB trimmed its outlook for Swiss economic growth this year to between 1 percent and 1.5 percent from around 1.5 percent in its December forecast. Its outlook for inflation this year is now -0.8 percent, down from -0.5 percent previously.