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SNB Says Expansionary Policy Necessary As It Sees Worst Swiss Economic Contraction Since 1970s

swisscentralbank jun13 18jun20 lt

Switzerland's central bank kept its expansionary monetary policy stance as it expects the economy to contract the most in over five decades and inflation to remain more negative than forecast earlier, this year due to the impact of the coronavirus, or Covid-19, and the lockdown restrictions imposed to slow the pandemic.

The Swiss National Bank left the key interest rate unchanged at -0.75 percent, in line with economists' expectations, and said it remains willing to intervene more strongly in the foreign exchange market due to the high valuation for the Swiss franc.

"The SNB's expansionary monetary policy remains necessary to ensure appropriate monetary conditions in Switzerland," the central bank said in a statement.

The central bank has provided banks with around CHF 10 billion in liquidity at the policy rate since the launch of the Covid-19 refinancing facility.

SNB Governing Board Chairman Thomas Jordan said the bank's expansionary policy has proved its worth and remains necessary. He hoped that the worst phase of the Covid-19 pandemic is over, but said a difficult phase of recovery lies ahead.

Governor Jordan also said that the SNB has made substantial interventions in the forex market since its March policy session and these have helped to ease the upward pressure on the Swiss franc somewhat.

"We believe that it will try to wait until the crisis passes and the uncertainty dissipates with a broadly unchanged monetary policy," ING economist Charlotte de Montepellier said.

"For the time being, however, the SNB believes that the current situation is manageable and will therefore continue to rely on its usual instruments," the economist added.

The bank cut its inflation forecast for this year to -0.7 percent from -0.3 percent seen in March, citing weaker growth prospects and lower oil prices.

The central bank said the economy is set to shrink around 6 percent this year, which would be worst decline since the oil crisis of 1970s.
The SNB hopes that any second wave of the coronavirus pandemic will be successfully prevented globally.

The Swiss economy is in a sharp recession and the slump in economic output will be even more severe in the second quarter, the SNB said.
The recent signals suggest that the economic activity again picked up somewhat since May, the bank said. However, the bank sees only a partial recovery for now and said the GDP will not return quickly to its pre-crisis level.

The economic revival seen for the second half of this year is likely to be reflected in clearly positive growth in 2021, the bank said.

Fritz Zurbrugg, vice-chairman of the Governing Board, said the two globally-focussed Swiss banks - Credit Suisse and UBS, are well placed to deal with the challenges posed by the economic crisis triggered by the coronavirus pandemic. He also said that the domestically-focussed Swiss banks' resilience is adequate overall.

Andrea Maechler, a Governing Board member, said the financial market situation and the currency market situation have improved since March, but the uncertainty remains high.

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