Switzerland: SNB leaves expansionary monetary policy in place in first meeting of 2019
At its meeting on 21 March, the Swiss National Bank (SNB) confirmed it would continue maintaining its current expansionary policy stance into 2019. The Bank left the target range for the three-month Libor at between minus 1.25% and 0.25%, where it has been now for over four years, and kept the interest rate on sight deposits unchanged at minus 0.75%. Moreover, the SNB reiterated that intervention in the foreign exchange market would remain pivotal to preventing a sharp appreciation of the Swiss franc.
The Bank’s decision, which was in line with analysts’ expectations, was largely guided by its assessment that the franc remains “highly valued”, despite depreciating slightly since the 13 December meeting. The SNB deemed maintaining its ultra-loose monetary policy paired with forex intervention as essential for curbing the attractiveness of investments denominated in Swiss francs, which are considered safe haven assets, and thus limiting upward pressure on the currency. Moreover, inflation in Switzerland has been extremely subdued (January and February: 0.6%), giving the SNB further reason to hold rates. The Bank again cut its inflation outlook on weaker economic growth at home and abroad as well as revised expectations for policy rates in major economies, given the more dovish tenor from the Fed and the ECB. The SNB now projects inflation of 0.3% in 2019 (December’s inflation forecast: 0.5%), while inflation for 2020 is now expected to be 0.6% (December’s forecast: 1.0%).
The overall tone of the communiqué was dovish. Low inflation, weakening growth prospects and the recent pivot by the ECB and the Fed which signaled slower monetary policy normalization, or even an outright pause, have left the Swiss National Bank little room to tighten its own stance without triggering a sharp appreciation of the currency. The Bank has gone to great lengths to avoid further strengthening of the franc, which would weigh on export-oriented sectors and put additional downward pressure on inflation. As a result, the Bank is likely to continue to leave the interest rates at historically-low levels, while many analysts expect the SNB to wait until the ECB hikes its rate, before beginning to tighten.
The next monetary policy meeting is scheduled for 13 June 2019.