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Swiss National Bank Retains Negative Interest Rate

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The Swiss National Bank retained its expansionary monetary policy on Thursday, and reaffirmed its stance to remain active in the foreign exchange market to prevent the franc from appreciating.

The interest rate on sight deposits at the central bank was kept unchanged at -0.75 percent and the target range for the three-month Libor was retained between -1.25 percent and -0.25 percent, the bank said in a statement.

The SNB reiterated that the Swiss franc is 'still significantly overvalued' and vowed to remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.

The negative interest rate and the SNB's willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency, the bank said.

With euro-zone political developments likely to put upward pressure on the franc, Jessica Hinds, a European economist at Capital Economics, said the SNB is likely to continue to intervene to prevent the currency from rising sharply.

The economist expects the SNB to keep interest rates at -0.75 percent until the end of the forecast horizon in 2018.

The central bank forecast 0.3 percent inflation for 2017 instead of 0.1 percent projected at the prior meeting. Meanwhile, the outlook for 2018 was lowered to 0.4 percent from 0.5 percent. The forecast for 2019 was 1.1 percent.

The bank cautioned that the outlook for Switzerland's economy is cautiously optimistic. The SNB continues to expect GDP growth of roughly 1.5 percent for 2017.

While the bank expects international economic developments to remain positive this year, its baseline scenario for the global economy is still subject to considerable risks.

Main risks among there are political uncertainty with respect to the future course of economic policy in the US, upcoming elections in Europe, and the complex exit negotiations between the UK and the EU, the bank noted.

by RTT Staff Writer

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