Swiss central bank keeps key interest rate at -0.75 pct to contain strong franc
Source: Xinhua | 2020-12-18
The Swiss National Bank (SNB) kept its policy rate unchanged at minus 0.75 percent on Thursday and said that it was willing to intervene more strongly in the foreign exchange market, while expecting Switzerland's economic output to shrink by around 3 percent this year due to the COVID-19 pandemic.
"The coronavirus pandemic is continuing to have a strong adverse effect on the economy," the SNB wrote in a press release following its monetary policy assessment. "Against this difficult backdrop, the SNB is maintaining its expansionary monetary policy with a view to stabilizing economic activity and price developments."
"The SNB is keeping the SNB policy rate and interest on sight deposits at the SNB at -0.75 percent," it noted.
Switzerland's central bank also said that its expansionary monetary policy would provide favorable financing conditions, counter the upward pressure on the Swiss franc, and contribute to an appropriate supply of credit and liquidity to the economy.
"In light of the highly valued Swiss franc, the SNB remains willing to intervene more strongly in the foreign exchange market. In so doing, it takes the overall exchange rate situation into consideration."
This comes as the U.S. Treasury Department on Wednesday tagged Switzerland as a currency manipulator, suspecting the country of taking measures to devalue the Swiss currency against the greenback. The Swiss central bank rejected the accusation.
The SNB said that the containment measures implemented have restricted economic activity and that it expects Switzerland's GDP to shrink by around 3 percent this year.
Switzerland has been reporting rising coronavirus infection rates in recent weeks, but unlike neighboring countries, it has so far refrained from imposing another lockdown to curb the spread of COVID-19.
"Everything is COVID related, not just domestically but also internationally. There isn't very much that the SNB can do. It's not a central bank issue, they can stand by and monitor the situation, but it's not a monetary policy question," Stefan Gerlach, chief economist at EFG Bank, told Xinhua.
"The weakness in the external and internal economic environment caused by COVID-19 remains the main risk in the first half of next year."
For 2021, the central bank said that developments will largely depend on the containment of the spread of the virus in Switzerland and abroad. "The SNB's assumption is that there will not be a significant easing in the containment measures in Switzerland until the spring," it wrote.
"Against this backdrop, the SNB expects GDP growth of 2.5 percent to 3 percent for 2021," the SNB forecast. "The recovery thus remains incomplete. Unemployment is likely to rise again, and production factors will remain underutilized for some time yet. The forecast for Switzerland, as for the global economy, is subject to high uncertainty."
Meanwhile, the State Secretariat for Economic Affairs (SECO) said on Tuesday that Switzerland's GDP is expected to decline in the fourth quarter due to the coronavirus crisis, but that no real slump in the Swiss economy will materialize.
Compared with the SNB's outlook, SECO expects the Swiss economy to shrink by 3.3 percent this year before recovering and grow by 3 percent in 2021.
"What benefits the Swiss economy a lot is that it's a very open economy. We continue to expect Asia to drive growth next year. Switzerland has a rising exposure to the region which will be a key opportunity," Patrick Zweifel, chief economist at Pictet Asset Management in Geneva, told Xinhua.
The SNB also said that the inflation outlook remains subject to high uncertainty due to the economic impact from the second wave of the pandemic.
"The forecast for 2020 is negative (-0.7 percent). The inflation rate is likely to be higher again next year (0.0 percent) and slightly positive in 2022 (0.2 percent)," it wrote.
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