By John Revill
ZURICH -The Swiss National Bank bucked the trend at its central bank counterparts in Frankfurt and Washington and kept its foot on the cheap money gas as it cut its forecast for Switzerland’s post-pandemic recovery.
Tepid inflation and a Swiss franc which remained “highly valued” ensured the SNB kept its policy interest rate of minus 0.75% and a commitment to foreign currency interventions, as expected. [L8N2QM2QE]
Although SNB Chairman Thomas Jordan welcomed tentative moves by the European Central Bank (ECB) and the U.S. Federal Reserve to scale back emergency support measures, he said the time wasn’t right to change the policy Switzerland has followed for the past six years.
“If major central banks in the world go into the direction of normalisation, that’s a very good sign regarding the state of the global economy and also a positive sign for the SNB,” Jordan told reporters.
“We have still a highly valued Swiss franc and still very low inflation pressure,” added the central banker who has returned to work after a heart operation last month. “The expansionary monetary policy of the SNB is right and there’s no reason to change this for the time being.”
The SNB is running against the trend at the ECB and the Fed, which have both announced small reductions to their vast bond buying programmes.
Norway’s central bank also raised its benchmark interest rate as expected, and said more hikes will follow.
Still, the SNB‘s Jordan was not for turning, especially as he saw a “bumpy” recovery from the COVID-19 pandemic for the Swiss economy, with the trade and hospitality sector weaker than expected.
Economic momentum had “slowed somewhat”, the SNB noted as it cut its 2021 GDP growth forecast for Switzerland by half a percentage point to 3%.
“For us it is clear that we have to maintain our expansionary monetary policy in order to support the recovery and to ensure – and this is very important – that inflation is in the range of price stability,” Jordan said.
Analysts said moves by other central banks were not enough to let the SNB start raising the world’s lowest interest rates it uses to reduce demand for the safe-haven franc.
“As long as the Fed does not start to increase its rate, the pressure on the SNB to change something is minimal,” said Thomas Stucki, an economist at St Galler Kantonalbank, adding rate hikes were the crucial consideration for the SNB, not reductions in bond-buying.
Capital Economics said it doesn’t expect a Swiss policy shift until well into the future.
“The bigger picture is that the SNB is unlikely to raise interest rates until after the ECB, and so probably well beyond our forecast horizon and in all likelihood not until the second half of this decade,” said its economist David Oxley.
“If you’re looking for policy action, you’ve come to the wrong place.”