SNB retains cap on franc; interest rate on hold
2012-09-13 12:47:06
The Swiss National Bank on Thursday decided to leave the cap on the franc exchange rate intact and the key interest rate unchanged near zero, as widely expected.
The minimum exchange rate was maintained at CHF 1.20 per euro. The bank reaffirmed that it will continue to enforce this ceiling with 'utmost determination'.
The target range for the three-month Libor rate was kept at 0.0-0.25 percent. If necessary, it will take further measures at any time, SNB added.
According to SNB, the Swiss franc is still overvalued and is weighing on economic activity. As such, the bank said it will not permit an appreciation of the Swiss franc, given the serious impact this would have on both prices and economic performance.
In order to hold the exchange rate at the fixed level, the bank will continue to buy foreign currency in unlimited quantities.
The SNB forecasts consumer prices to fall 0.6 percent in 2012. In June, the bank had estimated a 0.5 percent fall in prices this year. The downward adjustment reflects unfavorable prospects for the global economy and a more pronounced underutilization of production capacity.
Going forward, inflation is seen at 0.2 percent next year, and 0.4 percent for 2014. "Consequently, there is no threat of inflation in Switzerland in the foreseeable future," it said.
The central bank also lowered its 2012 GDP forecast citing deterioration in the global economic outlook. The SNB projects growth of around 1 percent as opposed to the 1.5 percent growth estimated in June.
In the near-term, downside risks to the Swiss economy is expected to stay high. The growth prospects are dampened by the euro area crisis as well as the uncertainty surrounding forthcoming fiscal policy decision in the U.S.
The KOF Swiss Economic Institute forecast the economy to grow at a slightly slower rate of 0.9 percent this year than the 1 percent growth forecast earlier.
Gross domestic product fell 0.1 percent sequentially in the second quarter, marking the first drop since the third quarter of 2011.
Economists at Credit Suisse said last week the Swiss economy will expand 1.5 percent next year as structural advantages provide a sound basis for expansion.
SNB also said it sees risks for financial stability from the persisting strong momentum on Swiss residential mortgage and real estate markets.