Swiss rates left unchanged, central bank sees slower growth

Thursday, 17. March 2016 10:00

The Swiss National Bank maintained its main interest rates on Thursday and lowered the forecast for economic growth this year to between 1% and 1.5%, from an earlier estimate of 1.5%. The target range for the three-month Libor is between 1.25% and 0.25% below zero and the negative sight deposit rate is 0.75%. Central bankers said the franc remains overvalued and vowed to continue their presence in the foreign exchange market. Shares in the domestic stock exchange were flat and the franc fell against the euro. The domestic currency was stronger versus the dollar and the yen and little changed compared to the pound.

Policymakers predict deflation of 0.8% for this year, compared to 0.5% from an earlier forecast, but said prices are expected to inch 0.1% up in 2017, 0.2 percentage points lower than in the last report. "Profit margins are still under pressure at many companies, and the willingness to invest and the demand for labour remain commensurately subdued. Consequently, the unemployment rate has risen again slightly in recent months," the bank said. Instability and structural weakness in Europe were cited in the report as possible headwinds for economic growth.

Earlier today, the State Secretariat for Economic Affairs (SECO) lowered the economic growth forecast by one percentage point for this and next year, to 1.4% and 1.8%, respectively. "The negative exchange rate effects are expected to gradually diminish in the course of 2016 and 2017. In contrast, the international economic context has lost momentum in recent quarters and there is no clear sign of a marked acceleration of global growth," it said. A separate statistical report today revealed producer and import prices dropped 0.6% last month. The overall index is at a 4.6% lower level than a year before, compared to a reading of 5.3% below zero from a month ago. Producer prices indicator lost 0.5% and imports fell 1% on the month.

Thomas Jordan, chairman of the Governing Board of SNB, said last month that Eurozone's negative rates, which were subsequently introduced in the neighbouring countries, also including Sweden, relieved some of the pressure, but that corporate financing conditions were less improved. Furthermore, there were examples of mortgage rates rising in monetary systems adjacent to the euro area, he underscored. He however added a possible policy instrument would be to lower the bank reserves level exempt from negative rates.

The SMI stock index was unchanged at 7,917 points at 9:41 a.m. CET. The franc weakened 0.18% against the euro and rose 0.3% and 0.4% compared to the dollar and the yen, respectively (all 9:57 a.m. CET).

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