Swiss National Bank keeps rates on hold; prepared to intervene against Swiss franc appreciation

The Swiss National Bank continues with its wait and watch stance. The SNB’s policy statement stated that the central bank is maintaining its expansionary monetary policy. The central bank kept the rate on hold as widely expected. SNB maintained interest of sight deposits at -0.75 percent, while the target range for the three-month Libor was also kept unchanged at between -1.25 percent and -0.25 percent.

Meanwhile, the Swiss National Bank highlighted once again its intentions to intervene against unnecessary appreciation of the Swiss franc, which is still seen as “significantly overvalued” by the central bank. If there is a majority for Britain to exit EU in the UK referendum next week, the Swiss franc is expected to be one of the safe havens that investors would look for, said Nordea Bank in a research report.

The Swiss central bank, in its policy statement, mentioned that the global economy continues to recovery moderately. The central bank expects the moderate growth to sustain in the quarter to come. However, it stated that the global economy continues to face significant risks. Also, it mentioned that “the imminent UK referendum on whether to stay in the European Union may cause uncertainty and turbulence to increase”.

Meanwhile, the SNB stated that the domestic economic recovery will continue, based on available indicators. The gradual rebound in the international environment is also likely to benefit the Swiss economy. According to the central bank, the jobless rate is expected to stabilize in the second half of 2016, and the Swiss economy is likely to grow between 1 percent and 1.5 percent for the whole of 2016.

On the inflation front, the SNB projects inflation to accelerate at a rapid rate in the coming quarters, mainly because of the considerable rise in oil prices. The effect of the rise in oil price on the annual inflation is likely to diminish after the first quarter of 2017. According to the monetary policy report, the SNB, for 2017, “expects an inflation rate of 0.3 percent, compared to 0.1 percent forecast in the last quarter, while still anticipating a rate of 0.9 percent for 2018”.

However, inflation at present, continues to be low. The SNB is unlikely to tighten its policy anytime soon, said Nordea Bank. If the EUR/CHF pair moves towards 1.05, the SNB might intervene in the foreign exchange market.