Swiss National Bank Retains Anti-Deflationary Policy Settings and Cuts Projected Inflation

March 14, 2013

The current ultra-accommodative Swiss monetary policy stance was launched in the summer of 2011.  The overnight target for 3-month Libor had previously been cut from a range of 2.25-3.25% between September 2007 and early October 2008 to a range of 0.0-0.75% by March 2009.  Officials had thereafter engaged unsuccessfully in intervention to cap franc strength that was intensifying Switzerland’s risk of deflation.  On August 3, 2011, the rate target was reduced to 0.00-0.25%, and domestic liquidity was increased substantially.   When this failed to correct a seriously overvalued franc, officials took the extra step on September 6, 2011 of subordinating domestic monetary policy to a cap on franc strength of 1.2000 per euro and declaring “utmost determination” to enforce that target by whatever means proves necessary.

The latest quarterly review of monetary policy reaffirms the primacy of the exchange rate policy and the CHF 1.2000 per euro level around which such is anchored.  The second sentence of the assessment calls the franc “still high” and declares a readiness to take further actions if needed.  Projected inflation, conditional on no change in policy, is more over revised lower to negative 0.2% this year followed by +0.2% in 2014 and +0.7% in 2015.  Such follows consumer price inflation of 0.7% in 2010, 0.2% in 2011, and minus 0.7% in 2012, giving a six-year forecast pace of 0.1% per annum.  Today’s statement also notes that GDP has been expanding more slowly than assumed previously and that considerable downside risks to growth remain.  Officials conclude that no threat of inflation exists for the “foreseeable future.”  A positive on-year inflation rate is not predicted to emerge until the first quarter of 2014, and the price increase between 4Q14 and 4Q15 is put at a sub-1% rate of 0.9%.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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