SNB left target range for the three-month Libor unchanged at between -1.25% and -0.25%, and maintained a dovish tone. Apart from pledging to intervene the “highly valued” Swiss franc, the central bank downgraded its inflation forecasts. However, this appears to have added limited selling pressure to franc, as both the Fed and ECB sounded more dovish in the meetings earlier this month.

At the policy statement, SNB continued to shows concerns over the exchange rate. It suggested that, although the franc has “depreciated slightly on a trade-weighted basis”, it remains “highly valued” and the forex market continues to be “fragile”. The members reiterated the pledge to curb the upward pressure of the franc, via maintaining “negative interest rate” and intervention to the currency market.

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Another key issue to watch is inflation, which has stayed weak over the past years. Headline CPI, at +0.6% in February, has been in a downtrend after peaking at 1.2% in July 2018. While the decline in energy prices in the second half of last year can be a reason for the weakness, core CPI has not shown signs of improvement. At the March meeting, SNB revised lower the inflation forecast to +0.3% for this year, from +0.5% projected in December. Inflation is expected to improve to +0.6% (December: +1%) in 2020 and then to +1.2% in 2021. These forecasts are based on the assumption that interest rate would stay the same over the forecast horizon.

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