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SNB monetary policy: Assessing future bias

The Swiss National Bank (SNB) in its monetary policy meeting today decided to maintain its current expansionary monetary policy, which basically means –

  • Interest on sight deposits at the SNB will remain at –0.75% and the target range for the three-month Libor will remain between –1.25% and –0.25%.
  • At the same time, the SNB will remain active in the foreign exchange market.

Let’s look at the monetary policy statement for further clues and to assess the bias for future actions -

  • SNB said that its policy is intended to make Swiss franc investments less attractive, thus easing pressure on the currency. The Swiss franc is still significantly overvalued, despite easing against the euro and recently against the dollar since its last meeting. The easing shows that safe haven is now less sought after, however, SNB is maintaining its stance as this development is still fragile. (Neutral bias)
  • The new conditional inflation forecast has been upgraded for the longer term and also for the shorter term as inflation has strengthened recently due to a weaker franc and higher oil price. SNB increased its inflation forecast for 2017 to 0.5 percent from 0.4 percent. For 2018, it increased inflation forecast to 0.7 percent from 0.4 percent at the last meeting and kept 2019 forecast unchanged to 1.1 percent. (Mild hawkish bias)
  • In the last few months, the global economy has strengthened further. The global economy exhibited strong board based growth in the third quarter. The growth forecasts for the euro area and the US have been revised upwards slightly compared to the previous baseline scenario. While the normalization of policy continues in the United States, policies in Euro are and Japan remains highly expansionary. (Neutral bias)
  • In Switzerland, GDP grew in the third quarter at an annualized rate of 2.5 percent. Growth was primarily driven by manufacturing, which benefited from dynamic economic developments abroad and the weaker Swiss franc. In the wake of this development, capacity utilization in the economy as a whole increased further. The unemployment rate declined again slightly through to November. (Mild hawkish bias)
  • Given the supportive global environment and favorable monetary conditions, the recovery in the Swiss economy looks set to continue in the coming months. For 2018, the SNB expects GDP growth of around 2 percent, compared to 1 percent in the current year. (Mild hawkish bias)
  • According to the SNB’s assessment, imbalances on the mortgage and real estate markets persist and the central bank will continue to monitor the situation.  (Neutral bias)

Compared to the previous statements, this one was little hawkish tilted, which says that SNB is likely to signal policy normalization in June or September quarter.

Franc is currently trading at 0.987 per dollar.

 

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