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The Swiss National Bank (SNB) in its monetary policy meeting today decided to maintain its current expansionary monetary policy, which basically means:
- Interest on sight deposits at the SNB will remain at –0.75% and the target range for the three-month Libor will remain between –1.25% and –0.25%.
- At the same time, the SNB will remain active in the foreign exchange market, as necessary.
Let’s look at the monetary policy statement for further clues and to assess the bias for future actions:
- SNB said that its policy is intended to make Swiss franc investments less attractive, thus easing pressure on the currency. The Swiss franc is still significantly overvalued. (Dovish bias)
- The policy is also aimed at stabilizing price developments and supporting economic activity. (Neutral bias)
- The new conditional inflation forecast suggests inflation will rise faster over the coming quarters than the SNB predicted in March, largely due to the significant increase in oil prices in the intervening period. However, it feels that the effect of this oil price rise on annual inflation will vanish after the first quarter of 2017. (Mild hawkish bias)
- Thanks to domestic demand, the global recovery is robust in US and China and becoming broad-based in Europe. SNB expects moderate growth of the global economy to sustain. Manufacturing and trade weak. (Neutral bias)
- It feels positive economic signals helped ease the tensions in financial market but risks remain, especially British referendum can cause uncertainties and volatility. (Conditional dovish bias)
- In Switzerland, real GDP grew at an annualized pace of 0.4 percent and recovery will continue. Exports will recover benefiting labor market and corporate investments.
- Mortgage market slowed but prices edged up. (Neutral bias)
With a clear lack of major dovish bias in the statement, we expect SNB to maintain current policy through 2016 and the first quarter of 2017. However, UK’s exit may change that.
Franc is currently trading at 0.963 per Dollar.
