Thursday, March 20, 2014

SNB maintains FX, interest rates, cuts inflation f'cast

    Switzerland's central bank maintained its upper limit for the Swiss franc's exchange rate along with its target for interest rates, as expected, and cut its forecast for inflation this year and 2015.
    The Swiss National Bank (SNB), which imposed a 1.20 euro cap on the franc during the height of Europe's sovereign debt crises in September 2011, also confirmed that it "stands ready to enforce the minimum exchange rate, if necessary, by buying foreign currency in unlimited quantitates."
    The SNB also maintained its target range for three-month Libor of 0.0 to 0.25 percent, the bank's target since April 2009.
    Due to its political stability and independence, the Swiss franc tends to be rise during periods of unrest with the recent rise in geopolitical risks surrounding Ukraine and Russia once again putting upward pressure on the franc. After ending last year around 1.23 to the euro, the franc rose to 1.21 in early March and was trading at 1.22 today.
    Switzerland has been experiencing deflation since late 2011 and consumer prices again fell by 0.1 percent in February after rising 0.1 percent in each of the months of November, December and January.
   "Internationally declining inflation rates and the slightly stronger Swiss franc are delaying the rise of inflation into positive territory," the SNB said.

   The SNB now expects inflation to be 0.2 percentage points below its previous forecast from December, expecting inflation of zero percent in 2014 and 0.4 percent in 2015 before rising to 1.0 percent in 2016.
    The pace of growth in Switzerland's economy weakened in the fourth quarter of 2013, as the SNB had expected, but it expects activity to pick up again from the first quarter of this year.
    For 2014, the SNB said it was still expecting Gross Domestic Product growth of around 2.0 percent. In the fourth quarter of last year, GDP expanded by 0.2 percent from the third quarter's 0.5 percent quarterly growth rate. On an annual basis, GDP grew by 1.7 percent in the fourth quarter, down from 2.1 percent in the third quarter.


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