The Swiss National Bank made reference to the slowdown of economic growth in its quarterly monetary policy assessment. The bank will keep rates negative to prevent the franc from rising.
The message came as little surprise: interest rates will be kept at minus 0.75 percent for yet another quarter and the threat of further currency interventions remains on the table. The Swiss National Bank (SNB) also avoided hinting at a plan of when it considered returning the key rate into positive territory.
«The Swiss franc is still highly valued, and the situation on the foreign exchange market continues to be fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential,» the bank said on Thursday.
Sluggish Growth in Manufacturing Industry
The bank in other words continues to put most emphasis on the valuation of the currency as its key variable for deciding interest rates. The slowdown of economic growth in Switzerland and abroad however acts as a backup to explain why the bank sticks to its guns.
Global economic activity has weakened more than expected in recent months, the central bankers said. Production in the manufacturing industry in particular was sluggish in a number of countries.
Downside Risks
The bank’s pronounced policy of keeping rates at a level conducive to keeping the franc from rising against the currencies of its major trading partners is based on its concern to prevent the export industry from taking a hit from the exchange rate. The slowdown of production of course adds ammunition to its quest.
«The SNB has made a downward revision to its growth outlook for the advanced economies for the first half of 2019,» the SNB said. «In the advanced economies, expansionary monetary policy and the robust situation on the labour market are lending support, as is fiscal policy in some countries. However, the risks are still to the downside.»
In Switzerland, economic growth also slowed in the second half of 2018, but over the whole year, the country recorded a brisk growth rate of 2.5 percent. In 2019, the Swiss economy will likely expand 1.5 percent.
Stabile Prices Expected
The bank also adjusted the inflation outlook and now expects prices to remain almost unchanged this year – the inflation rate outlook is 0.3 percent (down from a previous 0.5 percent). Inflation will accelerate slightly in 2020, reaching a rate of 0.6 percent, still far below the maximum level of 2 percent (in December, the bank had expected a rate of 1 percent).
The main reason behind the lower inflation expectation are slower economic growth and inflation abroad and lower expectations regarding policy rates in major currency areas.
