Swiss cbank holds fire on rates, cuts in­fla­tion out­look

The Pak Banker - - FRONT PAGE -

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.

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