We're all connected: Swiss economic health depends on the world, says SNB

Zurich, Switzerland (GenevaLUnch) - The Swiss National Bank’s (SNB) is guardedly more optimistic than in June about the outlook for the Swiss economy, it said Thursday afternoon 17 September in its quarterly report, but monetary policy will remain loose in order to stimulate the economy. The central bank revised its GDP (gross domestic product) forecast, saying it expects this to fall by between 1.5 and 2 percent, less steeply than forecast in June (2.5 to 3 percent). The key interest rate range remains unchanged at 0.0-0.75, “still aiming to keep the Libor within the lower end of this range, that is, at approximately 0.25%.” The Libor serves as an indicator of shifts in bank lending rates.

The SNB says it will continue to intervene in currency markets to keep the Swiss franc competitive internationally.

(Ed. note: Strong demand for the Swiss franc abroad in uncertain times drives up its exchange rate, making imported goods cheaper, thus potentially fueling deflation). The bank notes that “the inflation forecast shows that the expansionary monetary policy cannot be maintained indefinitely without compromising medium and long-term price stability.” Inflation has been negative for six months, with a risk of deflation, but has now been revised upwards, but the situation remains somewhat volatile.

The Swiss franc is stable against the euro, the SNB points out, a sign that monetary policy measures taken in March 2009 were “effective.” It adds, “However, the situation will remain tenuous as long as the level of financial uncertainty at the international level remains high. Consequently, the SNB will continue to act decisively to prevent any strengthening in the Swiss franc against the euro.”

The bank says that “the global economy has improved over the past few months and the downturn in the Swiss economy has proved to be considerably less substantial than had been forecast in the second quarter.” It expects growth to pick up again “gradually in the months ahead.”

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