Switzerland’s central bank retained its negative interest rates as policymakers assessed that the expansionary monetary policy stance is needed to cushion the impact of the coronavirus pandemic on economic activity and inflation.
The Swiss National Bank retained the policy rate and interest on sight deposits at the SNB at a record low -0.75 percent, as widely expected.
As the Swiss franc is still highly valued, the SNB said it is willing to ‘intervene more strongly’ in the foreign exchange market, while taking the overall exchange rate situation into consideration.
The central bank continued to supply the banking system with generous amounts of liquidity via the SNB COVID-19 refinancing facility, or CRF. It was also active on the repo market as needed, the bank said.
Looking ahead, FX interventions are set to remain the SNB’s weapon of choice to fend off bouts of upwards pressure on the currency, David Oxley, an economist at Capital Economics, said.
The SNB is expected to leave rates on hold at -0.75 percent throughout the forecast horizon and, in all probability, until at least later this decade, the economist added.
The central bank observed that the outlook to inflation is subject to unusually high uncertainty.
Consumer price are forecast to fall 0.6 percent this year compared to -0.7 percent decline estimated in June. Inflation is expected to turn positive next year, to 0.1 percent and increase slightly further to 0.2 percent in 2022.
The economy experienced a sharp recession due to the coronavirus pandemic. GDP is set to shrink by around 5 percent this year, which was better than the previous forecast of -6 percent.
The economic activity picked up since May following the relaxation of health policy measures. This should be reflected in a strong rise in the third quarter GDP. The positive development is likely to continue in 2021, the bank said.
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