Switzerland's central bank on Thursday softened its longstanding warning about the strong franc but still said that it was "highly valued, " suggesting Swiss officials aren't fully satisfied yet with the franc's weakening against the euro.
"The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile," the SNB said in a statement after its quarterly policy review.
In a policy statement accompanying its decision to keep its key deposit rate at -0.75%, the SNB noted that the franc has weakened against the euro and strengthened against the U.S. dollar since its last meeting three months ago.
The "highly valued" assessment is a departure from the SNB's longstanding warning that the franc was "significantly overvalued." The language tweak was noteworthy because the SNB's concerns over the franc's strength have formed the bedrock of its monetary policies t hat include negative interest rates and large-scale currency interventions.
“The SNB seems content to lag well behind the ECB and Fed in the monetary cycle,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York.
The franc has weakened by about 6% since the SNB's last meeting in mid-June. And while it has strengthened some against the U.S. dollar, the euro exchange rate is much more important for Switzerland because the eurozone if by far its largest trading partner.
"Maintaining the unqualified significant overvaluation statement would not have been credible," said Oliver Adler, head of economics at Credit Suisse.
Still, the SNB said it is still willing to intervene in markets if needed.
Despite the strong franc, Switzerland has chugged along with modest, if unspectacular growth while maintaining a high trade surplus and low unemployment. After years of falling prices, inflation has been positive, but low, this year.
It also kept its policy of charging 0.75 percent on sight deposits held by commercial banks above a certain threshold. The SNB said it needed to keep policy on hold in line with its target of maintaining price stability and supporting the Swiss economy.
The SNB cut its 2017 Swiss GDP growth forecast to just under 1 percent from the roughly 1.5 percent it forecast in June. The downward revision was broadly expected after tepid growth in the second quarter.