Article Highlights

  • SNB maintains its ultra-loose monetary policy
  • Central bank trying to weaken Swiss franc
  • Interest rate on sight deposits unchanged at -0.75 pct
  • Three-month Swiss franc LIBOR at -1.25 pct to -0.25 pct
  • Keeps 2017 Swiss growth forecast, trims 2018/19 inflation view
Partner Center Find a Broker

The Swiss National Bank said on Thursday reducing its huge balance sheet was not on the agenda as political and economic risks had not yet eased sufficiently for it to move away from its ultra-loose monetary policy.

The dovish tone signaled the Swiss central bank was nowhere close to tightening policy as it tries to keep a lid on the strong Swiss franc that is weighing on the export-led economy.

Asked if the SNB was considering trimming a balance sheet bloated by currency interventions, Chairman Thomas Jordan told a media conference:

“That is not an issue. Our monetary policy remains expansionary for the reasons we’ve given, namely low inflation, underutilisation of production capacities and a significantly overvalued franc.”

The U.S. Federal Reserve, in contrast, plans to shrink its $4.5-trillion portfolio. It mapped out on Wednesday a very gradual approach to shedding assets.

The SNB’s leeway has been limited by the European Central Bank’s massive bond-buying program, which has weakened the value of the euro.

UBS economist Alessandro Bee said he expected the ECB to announce in the second half of the year that it will start scaling back asset purchases in 2018.

“The bit more hawkish monetary stance by the ECB should give the SNB some monetary leeway in coming quarters. We first expect the SNB to keep monetary policy unchanged and to let the franc weaken. Only in June 2018 the SNB may use this monetary leeway to rise interest rate once.”

The SNB kept its target for three-month LIBOR at -1.25 percent to -0.25 percent and the rate on sight deposits at -0.75 percent as expected in a Reuters poll.

It kept its 2017 inflation forecast of 0.3 percent but trimmed its 2018 outlook to 0.3 percent from 0.4 and its 2019 forecast to 1.0 percent from 1.1.

It has kept rates frozen since it abandoned its cap on the franc versus the euro two and a half years ago, which sent the franc soaring against the single currency.

Jordan did not rule out cutting interest rates further if needed and said the SNB could also use currency interventions to weaken the franc.

The SNB has bought more than 47 billion Swiss francs ($48.4 billion) of foreign currency this year, although the amounts have been scaled back in recent weeks.

Jordan said the global economy was strengthening and labor markets were picking up while inflation remained surprisingly modest in most advanced economies.

“In our baseline scenario, we expect monetary policy to normalize further in the United States, obviously depending on the economic development there, and to remain expansionary in Europe. Europe is more important for us, of course.”

Jordan said political risks had diminished somewhat after pro-Europe centrist Emmanuel Macron’s election victory in France, but had not gone away completely and could still lead to upward pressure on the franc.

The SNB cited “considerable downside risks” to its baseline scenario. It saw 1.5 percent Swiss economic growth this year.

($1 = 0.9717 Swiss francs) (Additonal reporting by Joshua Franklin and John Revill in Zurich; Editing by Michael Shields and Toby Chopra)