The Swiss National Bank decided to retain its key interest rate and the currency ceiling on Thursday as an appreciation of the Swiss franc would compromise price stability, posing serious consequences for the economy.
At its latest quarterly monetary policy assessment, the SNB said it will maintain the exchange rate of Swiss franc at 1.2 per euro with 'utmost determination'.
The floor rate for the franc is considered as an important instrument in avoiding an undesirable tightening of monetary conditions. The bank first set the currency ceiling in September 2011.
The bank also maintained its key three-month Libor unchanged at 0.0-0.25 percent. The central bank reiterated that it stands ready to take further measures at any time and is prepared to buy foreign currency in unlimited quantities if needed.
In the foreseeable future, the bank sees no threat of inflation in Switzerland. The bank now forecast consumer prices to fall 0.2 percent this year, slightly faster than the 0.1 percent drop estimated in December.
In 2014, the economy will see a 0.2 percent inflation, the SNB said, while lowering projection from 0.4 percent. According to the bank's estimate, inflation will then rise to 0.7 percent in 2015.
The SNB confirmed its growth projection for this year, at 1.0-1.5 percent. But, the bank sees considerable level of downside risks to the economy.
The economic growth slowed to 0.2 percent in the fourth quarter following a strong rebound in the third quarter, as net exports of goods and services contributed negatively to the country's gross domestic product.
According to SNB, tensions in the euro area will rise again. In addition, uncertain future developments in the fiscal policies in advanced economies will dampen consumer and investment confidence and poses risks to growth. As a result, both the global economic situation and sentiment on the financial markets remain vulnerable.
The central bank last month initiated measures to curb a property market bubble. The banks were ordered to set aside capital as buffer against risks from surging housing prices and huge mortgage debt.
Today, SNB said it will monitor the momentum on the domestic residential mortgage and real estate markets closely.
Another tightening through bank reserves is possible if the mortgage bubble does not cool down before the end of this year, ING Bank economist Julien Manceaux said.
by RTT Staff Writer
For comments and feedback: email@example.com