News Column

SNB Retains Currency Ceiling; Rates Unchanged

June 19, 2014

BRUSSELS (Alliance News) - The Swiss National Bank on Thursday reaffirmed its currency exchange rate and maintained its interest rate close to zero as widely expected by economists.

The SNB maintained its minimum exchange rate of CHF 1.20 per euro. The central bank also left its target range for the three-month Libor unchanged at 0.0-0.25%.

The bank today said with interest rate close to zero, the currency ceiling continues to be the right tool to avoid an undesirable tightening of monetary conditions in the event of renewed upward pressure on the Swiss franc, which was still high, it said.

The SNB reiterated that it will continue to enforce the minimum exchange rate with the utmost determination. Further, the bank repeated that it is prepared to purchase foreign currency in unlimited quantities for this purpose, and to take further measures as required if necessary.

Julien Manceaux, an economist at ING Bank NV, said he currently expects no change in the exchange rate policy before late 2016 and in the interest rate policy before early 2016.

The path of the SNB's conditional inflation forecast of June points to lower inflationary pressure in the medium term. The bank sees no signs of inflation risks in Switzerland in the foreseeable future.

At 0.1%, the inflation forecast for the current year was raised by 0.1 %age points from zero.

The bank estimates 0.3% inflation for 2015, instead of 0.4% projected in March. For 2016, inflation is seen at 0.9%.

The SNB expects moderate recovery to continue in the coming quarters. For 2014, it again expects a growth rate of around 2.0%.

Nonetheless, the bank estimates substantial downside risks. Weaker global economic activity would be detrimental to economic growth in Switzerland, it said.

The government this week downgraded its growth outlook for this year to 2% from 2.2% and next year's outlook to 2.6% from 2.7%.

The bank today warned that there is a danger of greater volatility in the financial and foreign exchange markets since the major currency areas are in different phases of the monetary policy cycle.

In the Financial Stability Report, released Thursday, the bank welcomed the significant progress made by the big banks in improving their capital situation. The SNB urged banks to continue to improve their resilience and, in particular, their leverage ratios.

The prolonged period of globally low interest rates carries risks for financial stability. The bank warned that a continuation of this period could contribute to a further build-up of existing imbalance.

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Source: Alliance News

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