Swiss National Bank Quarterly Monetary Policy Review Leaves Settings in Place

March 20, 2014

Swiss monetary policy settings were left unchanged, and the released statement contained many elements common to recent quarterly reviews other than the retention of cap of 1.2000 francs per dollar to be defended by unlimited intervention if necessary, a 3-month Libor interest rate target range of 0.0-0.25%, and a point interest rate target pinned at virtually zero.

  • The statement calls the current franc’s value “still high” and embodies macroeconomic forecasts that assume the currency will weaken over the forecast period.
  • The path of projected inflation over the coming 2-3/4 years was again revised lower, in this case by an average of 0.2 percentage points for the current and each of the ensuing ten quarters.  Consumer prices rose 0.2% in 2011, fell 0.7% in 2012, fell another 0.2% last year and are projected to be unchanged this year and to rise 0.4% in 2015.  That’s a five-year 0.1% per annum rate if deflation. 
  • Deflation is said to have persisted longer than assumed earlier because the franc has stayed higher than expected and due to declining inflation in many parts of the world.  Under the latest inflation forecast, the on-year rate of CPI chanage doesn’t exceed zero in any quarter of 2014, doesn’t rise as high as 1.0% until the third quarter of 2016, and averages only 1.0% in full-2016.
  • Swiss GDP growth slowed last quarter but is projected at 2% in 2014.  However, Substantial downside risks are attached to the global economic recovery. 
  • The threat of intervention is defended as necessary for an economy with zero interest rates and negative inflation.  If the franc were to appreciate without maneuvering room to cut interest rates in response, Swiss monetary conditions would tighten.
  • Concern is expressed again about the ongoing buildup of imbalances in mortgage and real estate markets, which are being monitored closely.

The 1.2000 franc per ceiling was imposed initially on September 6, 2011.  Since then, the franc’s euro cross-rate has ranged between 1.2005 and 1.2562, averaging 1.2193 for the entire period, which is very close to the current spot value of 1.2190 francs per euro.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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