SNB’s Monetary Policy – No Change Despite Positive Outlook

 

The Swiss National Bank left the interest rates on sight deposits and the 3-month LIBOR rates unchanged last Thursday. The central bank renewed its commitment to intervene in the forex markets if needed, noting that the Swiss franc was “significantly overvalued.”

“In periods of uncertainty, [the franc] is still subject to increased upward pressure,” the SNB chairman, Thomas Jordan said at the news conference after the central bank made public its decision on monetary policy.

The central bank’s comments come amid the Swiss economy witnessing modest economic growth along with high trade surplus and falling unemployment levels.

The SNB prefers a weaker Swiss franc

The Swiss National Bank has been cautioning the market that it would prefer to see a weaker Swiss franc, noting that it was still too strong for the economy.

The key deposit rates were left unchanged at -0.75%. This has been untouched since early 2015 when the Swiss National Bank decided to remove the peg against the euro and instead started to actively defend the currency in the foreign exchange markets.

The currency, however, continues to remain a favorite.

This comes largely because of a stable economy and its low levels of debt, compared to other countries. Despite the SNB’s warning about intervening in the markets to weaken the Swiss franc, the currency continues to enjoy its status as a safe-haven, in times of turmoil.

Foreign investors often pile into the Swiss assets, despite them being less than attractive in terms of yield.

The SNB’s policy statement

The SNB’s policy statement said that “The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency.”

Following the SNB’s announcement, which showed no major changes to monetary policy, the Swiss franc fell modestly. The Swiss franc is also taking a breather as the political uncertainty in Europe along with renewed optimism on the economy. Investors now flock to European assets which are more attractive than the Swiss.