Swiss Central Bank Maintains Expansionary Monetary Policy Stance
19 March 2020 - 7:30PM
RTTF2
Switzerland's central bank left its interest rates unchanged and
raised its negative interest exemption threshold, as coronavirus,
or Covid-19 is posing exceptionally large challenges to the
economy.
The Swiss National Bank, on Thursday, decided to hold its policy
rate and interest on sight deposits at -0.75 percent.
Economists had also expected the rate to remain unchanged as it
had already reached negative levels.
The bank rephrased its view on the currency, saying the Swiss
franc is "even more" highly valued.
Negative interest and interventions are necessary to reduce the
attractiveness of Swiss franc investments and thus counteract the
upward pressure on the currency.
The SNB will take additional steps to ensure liquidity as
necessary. Along with other major central banks, the SNB also
decided to provide liquidity as part of the extended swap
arrangements, particularly in US dollars.
The central bank said it is raising the exemption threshold as
of April 1, 2020, thus reducing the negative interest burden on the
banking system. The threshold factor will increase to 30 from 25.
SNB does what it can with its little ammunition left, David Oxley,
an economist at Capital Economics, said. A broader crisis package,
in conjunction with the Federal Council, appears to be on its way,
the economist added.
Citing, lower oil prices, significantly weaker growth prospects
and the stronger Swiss franc, the SNB downgraded its inflation
forecast.
Consumer prices are forecast to drop 0.3 percent this year
before rising to 0.3 percent in 2021. Inflation is forecast to be
0.7 percent in 2022.
In December, the SNB had forecast an inflation of 0.1 percent
this year and 0.5 percent for 2021.
GDP growth is likely to be negative for the year as a whole. The
return to normality from the second half of the year onwards could
thereafter be reflected in strong positive growth in 2021, the bank
noted.
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