SNB Holds Rate For The Second Quarter

SNB Rate Decision

Actual: 2.75%
Expected: 2.75%
Previous: 2.75%

Switzerland's monetary policy authority opted to leave its 3-month Libor target at 2.25 to 3.25 percent - for an average rate of 2.75 percent. This is the second quarterly meeting that the SNB, headed by Jean-Pierre Roth, has kept its rates unchanged after eight consecutive quarter-point hikes beginning back in the final quarter of 2005. This shift from the Swiss central bank follows the general dovish lean that most monetary policy groups in the Western hemisphere have adjusted to. Most notably, the SNB's policy efforts have fallen into lock step with the ECB's decisions for more than a year. Considering the Euro Zone consumers the bulk of Swiss exports, this relationship is not surprising. In fact, economists and market participants' expectations for the SNB's rate decisions seem to be founded not on data in Switzerland, but on what changes the ECB has made to its monetary policy in its monthly policy meetings. However, economic data still supports a hawkish bias for the medium-term outlook. The assessment that accompanied the rate decision revealed policy makers viewed "a great deal of uncertainty" in regards to global economic activity and its effects on Switzerland. With the influence of rising energy prices, among other dynamics, the outlook for growth through 2008 was revised down from 'about 2.0 percent' to 1.5 percent - 2.0 percent. On the other hand, the sharp rise in energy and raw material prices has stoked expectations of front line inflation pressures. Through 2008, consumer-level inflation is forecasted to average 2.0 percent, where it was previously predicted to average 1.7 percent. Looking a little further out, the 2009 outlook for CPI was also revised higher from 1.4 percent to 1.5 percent. With this rate decision, the SNB seems to have confirmed its wait-and-see approach to further policy decisions. However, considering the long wait between the bank's policy meetings, a gloomier outlook for growth could easily set the SNB to a rate cut in June.

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