FRANKFURT (MNI) – Monetary policy in Switzerland should remain
accommodative in view of Swiss franc’s recent strength and low inflation
pressures stemming from the widening output gap, the Organisation for
Economic Cooperation and Development said in a report published Tuesday.

However, the OECD stressed in its latest economic survey that
“additional macroprudential tools” would also be of use, noting the rise
in mortgage lending and housing prices due to the low interest rates.

“In the assessment of the Swiss National Bank (SNB), house prices
exceed fundamental valuations only in some local areas so far, although
continued price increases could signal a housing bubble,” the OECD
warned. “Indeed, both outstandingly low interest rates and robust income
growth generate a propitious setting for asset price bubbles to
develop.”

The OECD said the SNB’s decision to fix a floor for the euro-franc
exchange rate was “appropriate” to fulfill its price stability mandate.
Still, “the SNB should weigh the benefits from this intervention against
its potential risks,” the OECD added.

“A number of other countries have also recently taken unilateral
action, ranging from currency intervention to measures to influence
capital inflows,” the OECD noted. “While these measures were introduced
to achieve legitimate domestic policy objectives, were such practices to
become more generalised, they could collectively have negative spillover
effects on trade and global capital allocation.”

Reiterating its short-term economic forecasts previously published
in November, the OECD said that the Swiss economic recovery was “broadly
balanced,” but it pointed to “substantial” uncertainty over the
near-term outlook, “especially in the context of the euro area debt
crisis.”

“GDP growth may weaken in 2012, widening the output gap, and the
unemployment rate is expected to bottom out,” the OECD said, adding that
inflation would likely remain subdued owing to the strong franc.

“Nonetheless, according to OECD estimates, potential growth has not
diminished as a result of the crisis and amounts to about 2%,” the
report read.

— Frankfurt Bureau: +49 69 720 142; email: frankfurt@marketnews.com

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