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.  (Neutral bias)
• The policy is also aimed at stabilizing price developments and supporting economic activity. (Neutral bias)
• The new conditional inflation forecast has been downgraded in the longer term and also for the shorter term. SNB decreased its inflation forecast for 2018 to 0.3 percent from 0.4 percent and reduced 2019 forecast to 1 percent from 1.1 percent. (Neutral bias)
• The global economy has strengthened further. Thanks to the economic growth, the labor market situation in advanced economies has improved in recent quarters. Despite positive developments in the real economy, inflation remains modest in most advanced economies. (Neutral bias)
• Monetary policy in Japan and in the euro area, in particular, is likely to remain very expansionary. In the US, monetary conditions are expected to gradually normalize. (Neutral bias)
• In its new baseline scenario for the global economy, the SNB anticipates that economic developments will remain favorable. The cautiously optimistic faces downside risks due to political uncertainty and structural problems in a number of advanced economies. (Neutral bias)
• In Switzerland, real GDP improved as the economy grew at 0.3 percent in the first quarter of this year and by 1.1 percent from a year ago. SNB still considers it as below average.  Expects recovery to continue.  SNB expects the growth to be 1.5 percent in 2017. According to the SNB’s assessment, imbalances on the mortgage and real estate markets persist. (Neutral bias)

With a lack of major dovish or hawkish bias in the statement, we expect SNB to maintain current policy through 2017 without any material changes in the economic outlook.

Franc is currently trading at 0.972 against the dollar.