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. However, it notes that since the last monetary policy the franc has weakened against the euro and strengthened against the franc, which according to the bank is slightly reducing the overvaluation. (Neutral bias)
• The new conditional inflation forecast has been upgraded for the longer term and also for the shorter term. SNB increased its inflation forecast for 2017 to 0.4 percent from 0.3 percent. For 2018, it increased inflation forecast to 0.4 percent from 0.3 percent at the last meeting and raised 2019 forecast to 1.1 percent from 1 percent. (Mild dovish bias)
• The global economy has strengthened further. The global economy exhibited strong board based growth in the second quarter. In the advanced economies, growth was above potential and in some cases exceeded expectations with the UK being an exception where Brexit uncertainty is weighing. In emerging economies growth was positive. SNB expects the trend to continue in the coming quarters. (Mild hawkish bias)
• Despite the favorable growth, SNB expects monetary policy to remain expansionary and central banks to only gradually remove the accommodation. (Mild dovish bias)
• Risks remain due to geopolitical uncertainties and future monetary policy path. (Neutral bias)
• In Switzerland, SNB expects the moderate recovery to continue.The economy is benefiting from consolidation of global economic activity. Renewed momentum in goods export supporting industrial activity, leading to higher capacity utilization.  Companies are also willing to invest. The situation in labor market improving. (Mild hawkish bias)
• SNB notes that recovery is less evident in GDP numbers largely due to lack of momentum in 2016 and early 2017. SNB forecasts slightly less than 1 percent growth for 2017. (Mild dovish 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)

With 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.

The franc is currently trading at 0.965 against the dollar.