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Swiss Central Bank Keeps Negative Rates Unchanged

swiss sept05 25mar21 lt

Switzerland's central bank retained its negative interest rate and softened its view on the currency market interventions given the recent fall in the Swiss franc against the euro.

Policymakers of the Swiss National Bank retained the policy rate and interest on sight deposits at the SNB at -0.75 percent, as widely expected, on Thursday.

Despite the recent weakening, the bank repeated that the Swiss franc remains highly valued. The bank said it is willing to intervene in the foreign exchange market 'as necessary', while taking the overall currency situation into consideration.

At the previous meeting in December, the bank had said t is willing to intervene 'more strongly' in the currency market.

Looking ahead, the stage is set for further inaction by the SNB over the coming years, David Oxley, an economist at Capital Economics, said. While the bank would be willing to counter any sudden increases in the currency, it will be able to stay out of the market.

The central bank today raised its inflation outlook citing the rise in oil prices and the weaker Swiss franc. Consumer prices are forecast to rise 0.2 percent in 2021 instead of nil growth estimated in December.

Likewise, the inflation outlook for 2022 was revised up to 0.4 percent from 0.2 percent. For 2023, inflation is seen at 0.5 percent.

"With inflation expected to be 0.5% in 2023, it seems clear that we should not expect the SNB to raise its key interest rate in the next few years, contrary to what we can expect elsewhere in the world," Charlotte de Montpellier, an ING economist said.

The SNB expects the economy to grow in the range of 2.5 percent to 3 percent in 2021, unchanged from the previous projection.

Regarding labor market, the central bank said the second wave of the pandemic is weighing on employment. Short-term working increased in recent months and unemployment continued to rise.

Further, the bank noted that mortgage lending and residential property prices increased in recent quarters. The vulnerability of these markets persists and continues to present a risk for financial stability.

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