By CentralBankNews.info
Switzerland’s central bank left its target for the benchmark 3-month Libor rate steady at minus 1.25 to minus 0.25 percent along with its deposit rate at minus 0.75 percent, and repeated that it still considers the Swiss franc to be “signficantly overvalued,” despite a slight depreciation.
The Swiss National Bank (SNB), which shocked financial markets in January by removing its cap on the value of the franc against the euro, added that its willingness to intervene in foreign exchange markets and the negative interest rates make investment in Swiss francs less attractive so this should help ease pressure on the currency’s value.
In its latest forecast, the SNB trimmed its projection of inflation this year to minus 1.0 percent from June’s forecast of minus 1.2 percent, the 2016 forecast to minus 0.4 percent from a previous minus 0.5 percent and the 2017 forecast to 0.3 percent from 0.4 percent, with the reduction in inflation expectations due to the drop in oil prices.
In August the inflation rate fell further to minus 1.4 percent from minus 1.3 percent in July.
After the SNB in January scrapped the 1.20 upper limit of the Swiss franc against the euro, it immediately jumped by 20 percent but has slowly depreciated since then, trading at 1.096 to the euro today for an appreciation since the start of the year of 9.5 percent.
Despite the risks facing the global economy, in particular uncertainty regarding China, the SNB still expects a moderate pace of recovery to continue and economic activity in Switzerland to pick up gradually in the second half of the year, with domestic demand supporting growth.
“If the international environment continues to improve and the overvaluation of the Swiss franc eases, exports should once again make a greater contribution to economic growth,” the SNB said, confirming that it still expects growth this year of close to 1.0 percent.
In the second quarter, the Swiss economy expanded by 0.2 percent from the first quarter for annual growth of 1.2 percent, the same as in the first quarter.
The Swiss National Bank issued the following statement:
The SNB expects economic activity to pick up gradually in the second half of the year. Domestic demand is likely to further support the economy. If the international environment continues to improve and the overvaluation of the Swiss franc eases, exports should once again make a greater contribution to economic growth. For the current year, the SNB still expects real GDP growth of close to 1%.”
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