SNB Keeps Ultra-Loose Stance, With Inflation in Comfort Zone

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The Swiss National Bank kept up its ultra-expansive monetary-policy stance aimed at thwarting any appreciation of the franc and insisted that any nascent inflation pressures it’s seeing won’t endure.

Officials raised their near-term forecast for price growth “slightly,” citing higher costs of oil, tourism-related services and goods affected by supply bottlenecks, while maintaining that the longer-term outlook is virtually unchanged.

“The SNB is not impressed by the current bout of inflation and sees it just as temporary,” said Alessandro Bee, an economist at UBS AG in Zurich. “The SNB doesn’t see any inflationary risks, not even in the long term. So a rate hike is off the table for years.”

The central bank has the world’s lowest interest rate at -0.75%, which it left unchanged on Thursday in a decision that underscores increasingly diverging global monetary policies. Just half an hour later, its Norwegian counterpart warned an increase in its benchmark is likely in September, a day after the U.S. Federal Reserve adopted a more hawkish tone.

Switzerland should reach its pre-pandemic level of output around the middle of this year, the central bank says, reflecting a sweet spot for the economy as growth picks up alongside the rollout of Covid-19 jabs, but no sign yet of the sort of inflation spike that prompted the Fed’s shift in view.

Rosier prospects for global expansion helped the franc drop against the euro this year, though that decline moderated recently. Officials on Thursday reiterated a pledge to use foreign exchange interventions if necessary.

The franc was little changed after the decision, trading at 1.09117 against the euro as of 10:14 a.m. in Zurich.

The SNB’s policy of negative rates and currency interventions is now in its seventh year. Officials have resorted to those measures in response to the European Central Bank’s bond buying, to curb appreciation pressure on the franc.

Euro-area policy makers agreed earlier this month to keep monetary stimulus flowing at an accelerated pace through the summer, insisting that a pickup in inflation due to higher commodities prices and supply chain bottlenecks will be temporary.

That increase, even if short-lived, could be sharp. Bundesbank President Jens Weidmann said Germany could see price growth temporarily hit 4% toward the end of the year, while Dutch Governor Klaas Knot said “upside risks” are starting to emerge.

Swiss Inflation

Although costs of imported goods are climbing, Switzerland’s headline inflation rate is well within the zone compatible with the SNB’s definition of price stability.

“Short-term inflation expectations have risen globally,” President Thomas Jordan told reporters. “However, these effects should have abated in a few quarters’ time.”

The central bank sees inflation reaching 1% in the fourth quarter, though it will average only 0.4% through 2021 as a whole. In the next two years, it will be 0.6%, according to its outlook.

Economists generally consider the SNB’s hands tied on policy until the ECB unwinds its stimulus and eventually raises interest rates. Moving beforehand would risk adding to appreciation pressure on the franc.

Having experienced its biggest slump in decades last year due to the pandemic, the SNB says the rebound will amount to expansion of 3.5% over 2021 as a whole.

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