Adds further details on inflation, growth outlook to story sent 04:54 ET
FRANKFURT (MNI) – The Swiss National Bank on Thursday left its
target range for the three-month Swiss franc Libor unchanged at
0.0%-0.75% and said it would continue targeting the lower end of the
range at approximately 0.25%.
At the same time, the central bank raised its growth and inflation
forecasts for 2011.
The decision to keep interest rates on hold this month had been
widely expected, given the strong Swiss franc and comparatively benign
inflation pressures.
Earlier this week the franc hit a fresh record high against the
dollar and also firmed against the euro as investors moved into safe-
haven currencies following Japan’s earthquake, tsunami and nuclear
disaster.
The central bank lifted its inflation forecast for 2011 to 0.8%
from 0.4% seen in December last year. In 2012 inflation is seen rising
to 1.1% (1.0%), still falling short of the SNB’s price-stability target
of slightly under 2.0%, before climbing further to 2.0% in 2013. The SNB
cautioned that these forecasts are “associated with a very high level of
uncertainty.”
Higher 2011 inflation forecasts are “due to a renewed sharp
increase in oil prices, more dynamic domestic growth and more positive
assumptions for the global economy…..From mid-2012 onwards, the impact
of the recent Swiss franc appreciation has a moderating influence on the
forecast,” the central bank said in a statement.
Swiss consumer prices rose a slightly more than generally expected
0.4% m/m in February, taking the annual inflation rate in February to
0.5%. Low inflationary pressure by international standards can largely
be ascribed to the strong franc, which dampens the impact of rising
commodity prices.
Nevertheless, the central bank has long warned, as it did today,
that “the current expansionary monetary policy cannot be maintained over
the entire forecast horizon without compromising long-term price
stability.” The European Central Bank’s signal that it may hike interest
rates as early as next month has stoked speculations over a nearing rate
hike in Switzerland.
For the short-term, however, there is “no threat to price
stability,” the SNB asserted. “Survey data show however that inflation
expectations in Switzerland remain stable,” it added. SNB board member
Thomas Jordan also appeared to want to dampen immediate tightening
expectations. Earlier this month, he said that rate hikes are “not a
question of today or tomorrow but of the longer term.”
Still, ongoing concerns over the real estate and mortgage market,
which “still requires the full attention of the SNB,” shows that the
central bank harbors concerns over ultra-low interest rates that may
fuel bubbles as the recovery continues.
The SNB hiked its GDP growth forecast for 2011 to 2.0% from a
previous forecast of 1.5%. The upward revision has been widely expected
after the State Secretariat for Economic Affairs earlier this month
reported that the economy had grown a healthy 0.9% q/q in the final
quarter of 2010.
Forward looking indicators continue to show robust growth,
suggesting that the slowdown forecast by the central bank may not be as
severe as previously expected.
“Despite the continued strength of the Swiss franc, the Swiss
economy…grew more vigorously in the fourth quarter of 2010 than
anticipated,” the central bank’s statement said. “Positive business
expectations suggest favourable developments in the economy in the
coming months, even though stagnating goods exports indicate that growth
will slow during the course of the year.”
While the “global economic outlook is encouraging” and the
“uncertainty about the future outlook for the global economy has
abated,” the SNB remains cautious.
Uncertainty is “still considerable,” the bank said. “Since worries
about the stability in the euro area and geopolitical concerns could
lead to renewed tensions, downside risks continue to dominate.
Uncertainty about developments in Japan has introduced a new element of
risk,” the SNB warned.
Frankfurt Bureau tel.: +49-69-720 142, email: jtreeck@marketnews.com
[TOPICS: M$$CR$,MN$RP$,M$$EC$,M$X$$$,M$$FX$]
