Thursday, the Swiss National Bank left its key interest rate unchanged for a fourth time to support the economy, which is emerging from the shadows of the worst recession.
In its first quarterly meeting of the year, the central bank's Governing Board, led by Chairman Philipp Hildebrand, left its three-month libor target range unchanged at 0%-0.75%, as expected. In effect, the bank kept its key interest rate unchanged at 0.25%.
There are few signs that the SNB is about to alter its policy stance, said Jonathan Loynes, an economist at Capital Economics. The economist sees few indications that the central bank will tighten monetary policy in the foreseeable future.
Sticking to its stance on the country's currency, the SNB said it will act decisively to prevent any excessive appreciation of the Swiss franc against the euro. An appreciation of this kind would result in an undesired tightening of monetary conditions, the bank cautioned.
"The signs of an economic recovery are becoming more tangible," the central bank said. "The improvement is beginning to assist the Swiss export sector, while the domestic sector is performing well."
With regards to economy, the central bank said domestic economic recovery is underway in line with the trend in global economy. However, because of various after-effects of the crisis on the global economy, the bank said recovery may remain fragile.
"It is probably not yet time to change the monetary policy stance but the strong recovery - which appears increasingly likely - gives us assurance that the Swiss National Bank will begin to hike rates in the second half of this year," ING Bank NV economist Julien Manceaux said in a note ahead of the monetary policy decision.
The central bank revised up its real GDP growth forecast for 2010 to 1.5% from 0.5%-1% expansion predicted in December. Gross domestic product rose 0.7% sequentially in the fourth quarter. The economy exited recession in the third quarter last year by growing 0.5%, ending four quarters of negative GDP.
"The economy is still benefiting strongly from government support measures," the SNB said. "Not until these have been phased out will it become clear whether the stabilisation or recovery evident in certain markets is sustainable."
Prospects for this year are forecast to be better compared to 2009. The Zurich-based KOF said on February 26 that Swiss year-on-year GDP growth rates will remain in positive territory this year. The think tank sees 0.6% expansion this year, up from just 0.1% growth predicted in September.
The SNB sees inflation at 0.7% in 2010 and at 0.9% in 2011. Forecast for 2010 was revised from 0.5% predicted in December, while the 2011 outlook remained unchanged. In February, inflation stood at 0.9%, down from 1% in January.
The bank noted that short-term price stability is not threatened. But, the current expansionary monetary policy cannot be maintained throughout the entire forecast horizon without compromising medium and long-term price stability. It warned the global economic recovery remains fragile and the danger of deflation cannot be entirely ruled out if more external shocks occur.
The central bank said it is monitoring the loan market carefully. It warned banks and borrowers to be extremely cautious, given the growth in mortgage loans and the continuing increase in residential real estate prices.
For comments and feedback: editorial@rttnews.com