Article Highlights

  • SNB keeps negative rates on hold as expected
  • Economists start pushing back forecasts for rate rises
  • SNB says Italian politics, protectionist wave heighten risks
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The Swiss National Bank sees no reason to start normalizing its ultra-loose monetary policy, it said on Thursday, citing rising political uncertainties which could trigger renewed demand for the safe-haven Swiss franc.

SNB Chairman Thomas Jordan pointed to Italy’s new anti-establishment government and mounting protectionism as contributing to “fragile” currency markets, as the SNB kept negative interest rates on hold, as expected.

The SNB also lowered its medium-term forecast for Swiss inflation, indicating a less pressing need to hike rates.

“The risks are more to the downside, reflecting the more difficult political situation in Italy which had a big impact on international financial markets,” Jordan told a news conference.

“We will adjust our monetary policy at the point when it is necessary. But it is of no use to change monetary policy too early in order to provoke an appreciation in the Swiss franc and then we will again have monetary conditions which are too tight.”

Instead the bank would “remain prudent,” Jordan said, adding the SNB would always determine policy independently of other central banks like the European Central Bank, which has made small steps towards normalization.

“Obviously we must take international developments into account because they have an impact on the demand for exports, and also on the exchange rate and inflation,” Jordan said.

His comments made economists consider shifting their forecasts for SNB rate hikes later into 2019 or beyond.

“The lower inflation outlook and the comments on increased global uncertainty give the SNB cover to stay in expansive mode for longer than previously expected,” said Karsten Junius, an economist at J.Safra Sarasin.

“We did not expect a move before Q2 2019 and are now moving to Q3 2019,” he said.

Charlotte de Montepellier at ING said: “We don’t forecast any hike in rates before December 2019 and it could be postponed even further.”

The SNB kept its description of the franc as “highly valued,” as it held its target range for the three-month London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent.

It also held the interest rate it charges on sight deposits at -0.75 percent, adding it remained ready to intervene to curb franc strength.

After weakening to breach the symbolic 1.20 level versus the euro in mid-April, the franc has resumed its upward trajectory. The near 5 percent appreciation has been largely driven by investors seeking the safe-haven currency.

The SNB is expected to be among the last of the major central banks to normalize its negative rates.

The U.S. Federal Reserve is already well into its hiking cycle, while the European Central Bank has said it will end its bond buying scheme by the end of this year, although it also signaled that any rate hike was some way off.