SNB Bides Time on Rates as Weaker Franc Helps Inflation Outlook

(Bloomberg) -- The Swiss National Bank kept interest rates at a record low, remaining in wait-and-see mode as it monitors the impact of a weaker franc on inflation.

While the franc’s 8 percent drop against the euro this year is boosting economic momentum and once-anemic price growth, SNB President Thomas Jordan is wary of any steps that might entice investors to pile back into the currency and fuel a rally.

Keeping its deposit rate at a rock-bottom minus 0.75 percent and reiterating a pledge to wage currency market interventions if needed, the SNB said Thursday that the franc remained “highly valued”. Jordan and his colleagues Fritz Zurbruegg and Andrea Maechler are set to elaborate on that at 10 a.m. in Bern.

“The depreciation of the Swiss franc reflects the fact that safe havens are currently less sought after,” the SNB said. “However, this development is still fragile.”

The announcement comes amid a bevy of central bank decisions -- kicked off by the Federal Reserve’s interest rate hike on Wednesday and which continue with the Bank of England and the European Central Bank later on Thursday. Rate setters are faced with a quickening of global growth that may finally increase price pressures and allow them to move off the ultra-loose policies in place for the past years.

The SNB has already responded to the franc’s decline, tweaking its language in September to say the move had helped curb its “significant overvaluation,” a sentiment reiterated on Thursday.

The currency is currently about 1.16 per euro, down from 1.07 a year ago.

Still, the central bank, which used a 1.20 minimum exchange rate between 2011 and 2015 to fend off haven inflows amid the euro-area debt crisis, effectively has its hands tied on policy until the ECB raises rates. It scrapped the upper limit on the franc in early 2015.

Mario Draghi’s institution is expected to only begin lifting euro-area borrowing costs in 2019, according to a Bloomberg survey of economists published this week. The SNB isn’t forecast to make any changes before then.

The Swiss central bank also updated its economic forecasts on Thursday and now sees inflation at 0.7 percent in 2018 and 1.1 percent in 2019, versus its September prediction of 0.4 percent and 1.1 percent respectively. It expects price pressures to accelerate to 2.1 percent in the third quarter of 2020.

The SNB also issued a first take on growth next year, predicting an expansion of around 2 percent after 1 percent in 2017.

--With assistance from Joel Rinneby Joshua Robinson Jana Randow Jan Dahinten Carolynn Look Piotr Skolimowski Alessandro Speciale Paul Gordon and Brian Swint

To contact the reporter on this story: Catherine Bosley in Bern at cbosley1@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss

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