Following its June quarterly policy meeting, the Swiss National Bank (SNB) made no changes in interest rates with the target rate for 3-month Libor rate remaining at -0.75%. Consensus forecasts were for an unchanged policy.
The SNB reiterated that the franc is still significantly overvalued and that it would remain active in the foreign exchange market as necessary, the same rhetoric as seen at the previous meeting.
The SNB’s policy mandate is to achieve price stability while also supporting economic activity. Negative rates and intervention are aimed at making Swiss investments less attractive in order to ease upward pressure on the currency.
The 2017 inflation forecast was unchanged at 0.3% while the 2018 forecast was cut slightly to 0.3% from 0.4%. The 2019 CPI inflation forecast was also cut slightly to 1.0% from 1.1% previously.
According to the SNB, imbalances in mortgage and real estate markets have eased very slightly over the past few quarter, although they are still as pronounced as in 2014 and the SNB will continue to monitor developments closely.
The Swiss National Bank will be relieved that the Federal Reserve has maintained its gradual policy tightening with short-term interest rates now close to 2.0% higher than official Swiss rates.
The main focus will, however, still tend to be on the ECB policy actions and the National Bank will be looking for a tapering of ECB bond purchases to ease pressure on the Swiss currency. Until there is any significant shift by the ECB, the National Bank will have very little room for manoeuvre.
The Swiss currency gained marginally against the Euro following the decision with EUR/CHF at 1.0880 from 1.0890, although USD/CHF was able to hold above 0.9700.