Swiss National Bank Quarterly Policy Review

March 16, 2017

The current Swiss monetary policy stance dates back to January 2015 when a number changes were introduced. A previous cap on franc appreciation at 1.2000 per euro was abandoned, but a continuing role for discretionary, rather than automatic, forex intervention was retained to counter excessive appreciation as needed. By some objective criteria like purchasing power parity, the franc is the most overvalued of the major currencies. At the same time, the sight deposit target was reduced 50 basis points to -0.75%, and the targeted range for 3-month Swiss Libor was shifted more deeply into negative territory at -1.25% to -0.25%.

The released statement after the latest quarter policy review projects average CPI inflation of 0.3% in 2017, 0.4% next year and 1.1% in 2019. Compared to the December 2016 review, the forecast for this year is slightly higher, and that for 2018 is marginally lower. In only one quarter since 2013 has on-year inflation been positive (0.1% in 2Q14), and such averaged zero in 2014, -1.1% in 2015, and -0.4% in 2016. While zero to marginally positive inflation has been restored, officials see no more than 0.2% over the coming five quarters, and a rise to as much as 1.0% isn’t foreseen until 2Q19 even if the sight deposit rate stays at -0.75% the whole time. Swiss economic growth was negligible in the second half of 2016, but officials are guardedly optimistic that such will be somewhat over 1.0% this year.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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