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Swiss National Bank Holds Interest Rate Steady, Cuts Inflation Forecast

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Switzerland's central bank left its negative interest rate unchanged on Thursday and trimmed its inflation forecast for next year as it cited a strong franc and downside risks to the economy that could arise from a global slowdown.

The Swiss National Bank left its interest on sight deposits unchanged at -0.75 percent and the target range for the three-month Libor between -1.25 percent and -0.25 percent.

The decision was in line with economists' expectations.

The previous move in the sight deposit rate was a 50 basis points reduction in January 2015, when the bank also abandoned its currency exchange rate ceiling of CHF 1.20 per euro.

The SNB said it is maintaining its expansionary monetary policy and will remain active in the foreign exchange market as necessary.

Despite a modest depreciation since the September policy session, the Swiss franc is "still highly valued, and the situation on the foreign exchange market continues to be fragile," the bank said in a statement.

Hence, the negative interest rate and the willingness to intervene in the foreign exchange market as necessary remain essential, the bank added.

The Swiss central bank hoped that these measures would keep the attractiveness of Swiss franc investments low and reduce upward pressure on the currency.

The Swiss franc had strengthened in the past few months as investors seek a safe haven due to tensions in Europe, mainly the Italian debt crisis, Brexit and anti-government protests in France.

Citing the drop in oil prices and moderate growth prospects, the SNB trimmed its inflation forecast for next year to 0.5 percent from 0.8 percent. The outlook for 2020 was lowered to 1.2 percent from 1 percent. The bank retained its projection for this year at 0.9 percent.

The bank forecast solid growth for the global economy in the short term and a gradual slowdown in the medium term. The SNB added that there were significant risks to the outlook due to political uncertainties and protectionist tendencies.

The central bank projected GDP growth of around 2.5 percent for this year and nearly 1.5 percent for next year.

"Risks are to the downside, as is the case with the global economy," the SNB said. "In particular, a sharp slowdown internationally would quickly spread to Switzerland."

Further, the bank said there is the particular risk of a price correction in the residential investment property segment, due to strong price increases in recent years and growing vacancy rates, despite a stabilization.

The bank said it will continue to monitor developments on the mortgage and real estate markets closely, and will regularly reassess the need for an adjustment of the counter-cyclical capital buffer.

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