Switzerland’s central bank maintained its interest rate and exchange rate targets, as expected, and said the downside risks to the Swiss economy remain considerable while revising downwards its inflation forecast.
The Swiss National Bank (SNB) kept its target range for three-month Libor at zero to 0.25 percent and repeated its pledge to “buy foreign currency in unlimited quantities” to keep the Swiss franc below 1.20 per euro.
The cap on the Swiss franc was introduced in September 2011 as jittery investors from the euro zone sought refuge in Swiss assets, pushing up the value of the Swiss franc and negatively affecting the competitiveness of Swiss industry.
Switzerland’s headline inflation rate in February was minus 0.3 percent, the 17th month in a row with deflation. In 2012 the average inflation rate was minus 0.7 percent
The SNB now expects an inflation rate of minus 0.2 percent for 2013, plus 0.2 percent for 2014 and 0.7 percent for 2015. This compares with its previous forecast of 0.1 percent in 2013 and 0.4 percent in 2014.
“Under this assumption, the Swiss franc weakens over the forecast period,” the SNB said, adding that “in the foreseeable future, therefore, there continues to be no threat of inflation in Switzerland.”
Switzerland’s economic growth slowed as expected in the fourth quarter, but the SNB said it continues to expect growth of 1.0-1.5 percent in 2013.
Gross Domestic Product expanded by 0.2 percent in the fourth quarter from the third, for annual growth of 1.4 percent, up from 1.2 percent.
“Downside risks to the Swiss economy remain considerable,” the SNB said, adding that tensions in the euro area may rise again and uncertainty about the future of fiscal policies in many advanced countries is dampening consumer and investment confidence, posing risks to growth.
“The global economic situation and sentiment on the financial markets therefore remain vulnerable,” the SNB said.