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 upgraded for the shorter term. SNB increased its inflation forecast for 2017 to 0.3 percent from 0.1 percent thanks to higher oil price but reduced 2018 forecast to 0.4 percent from 0.5 percent. 2019 forecast at 1.1 percent. (Neutral bias)
• SNB sees strong consumer demand and low unemployment driving growth in the United States. While growth in the Germany, Japan, and China remain healthy. Growth in the UK surprisingly strong.  (Neutral bias)
• Global economy to continue improvement. Industrial activity and international trade picked up. SNB expects the global economic outlook to remain upbeat in 2017 but warns on risks.  The central bank warns on the uncertainty arising from future economic policy in the US, upcoming elections in Europe, and Brexit negotiations.  (Mild Hawkish bias)
• In Switzerland, real GDP grew at an annualized pace of 0.3 percent in the third quarter of last year and growth was below expected in the fourth quarter.  Expects recovery to continue.  SNB expects the growth to be 1.7 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 bias in the statement, we expect SNB to maintain current policy through 2017 without any material changes in the economic outlook. As a matter of fact, today’s statement is slightly hawkish compared to the previous one.

Franc is currently trading at parity with the dollar.