SNB keeps interest rates, Euro Franc change gets better

SNB keeps interest rates, Euro Franc change gets better

22 March 2019

The Swiss National Bank has decided not to raise interest rates that are very low and announced new forecast for inflation even lower than the previous one. The institution warned that global economic slowdown could get worse. It also emerged that in 2018 the SNB bought foreign currencies worth CHF2.3 billion.

Unchanged interest rates

The SNB kept interest rates at minus 0.75 percent level. It also reiterated pledge to intervene when the time is right. At the same time, it claimed once again that swiss franc is highly valued. The exchange rate CHF/EUR favors the franc that is very strong against the common UE currency. That, combined with a dramatic turn for a slowdown in the global economy, makes it hard for the SNB – and other central banks – to boost inflation and price pressures. In a bid to try to counter the high value of CHF and very low inflation, the SNB decided to keep interest rates at the bottom and occasionally try to make currency interventions as it buy euros or other foreign currencies. Interest rates hike is not expected in any near future. Similarly, the US Federal Reserve is expected to keep changes to rates on hold for some time. Meanwhile, the European Central Bank vowed to keep rates at the same level at least till the end of this year.

Another cut in inflation outlook

The low inflation is here to stay – its outlook has been cut for the fourth time in a row on a recent SNB’s meeting. The inflation is now forecasted to be at 0.3 percent this year and 0.6 percent in the next one. Inflation causes troubles not only to Swiss policy-makers. On Wednesday, March 20th, Jerome Powell, the chairman of the FED commented that low inflation is one of the major challenges in current worldwide economy. Also, the ECB stated in its economic bulletin released on Thursday, March 21st, that eurozone inflation is still muted. According to market experts, cutting further inflation forecast is a dovish approach, but similar to that adopted by both the ECB and the FED. Even though inflation outlook was slashed and there are signs of lasting global economic slowdown, the 2019 growth prediction for Switzerland remained unchanged at 1.5 percent. The SNB stated that low unemployment level and good use of production capacity, as well as other economic data suggest the growth is still on track to reach the target.

Currency interventions in 2018

The SNB announced that last year it bought foreign currencies worth CHF2.3 billion. Considering that in 2017 it intervened in market by buying as much as CHF48 billion worth foreign currencies, last year sum is significantly small. Still, the labor party commented that the SNB is not doing enough to counter the Swiss Franc overvaluation. In the statement the Swiss Federation of Trade Unions said that the SNB is lacking clear goals and their enforcement as the response to the exchange rate.

Market’s reaction

In reaction to the SNB’s actions, the swiss franc has changed a bit in the exchange rate against the euro – it hit 1.325 level on Thursday. In last two month the exchange rate was mostly falling in the scope of CHF1.13-1.14. The Swiss currency is tamed down now, but it can get boost again if the political tensions – including Brexit ongoing turmoil – will make investors buy swiss franc more eagerly.