The Swiss National Bank (SNB) is maintaining its expansionary monetary policy, thereby stabilising price developments and supporting economic activity. Interest on sight deposits at the SNB remains at –0.75% and the target range or the three-month Libor is unchanged at between –1.25% and –0.25%.
“The situation on the foreign exchange market is still fragile,” the central bank said, adding that it’s current policy remains “essential” to ease pressure on the currency.
Currency-market interventions have been part of the SNB’s toolkit for roughly a decade, and it’s supplemented them with a charge on sight deposits to keep interest rates in Switzerland below those of the euro area. The stronger the franc, the greater the risk of deflation and the export-oriented economy suffering a slowdown.
For 2018, the SNB continues to anticipate inflation of 0.9%, while the inflation forecast of 0.8% for 2019 is 0.1 percentage points lower than projected at the last assessment. For 2020, the SNB expects to see inflation of 1.2%, compared with the 1.6% forecast in the last quarter.
Even with the franc’s strength, the Swiss economy is booming, as the government acknowledged earlier this week. The SNB raised its 2018 GDP forecast to between 2.5 percent and 3 percent, compared with around 2 percent in June. The stronger growth forecast is attributable to the upward revision for the previous quarters.
But both the central bank and the government also cited the risk of a stronger currency smothering growth. Risks include a fallout from Italy’s budget, turmoil in emerging markets, and a worsening of the U.S.-China trade war.