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(SNB) Monetary Policy Assessment

Swiss National Bank leaves expansionary monetary policy unchanged

The Swiss National Bank (SNB) is maintaining its expansionary monetary policy. Interest on sight deposits at the SNB is to remain at -0.75% and the target range for the three-month Libor is unchanged at between -1.25% and -0.25%. At the same time, the SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration. The SNB’s expansionary monetary policy is aimed at stabilising price developments and supporting economic activity. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency. The Swiss franc is still significantly overvalued.

Compared to September, the new conditional inflation forecast has been revised slightly downwards in the short term. This mainly reflects the fact that inflation in October and November was slightly lower than expected. The SNB nevertheless anticipates an unchanged inflation rate of -0.4% for 2016. For 2017, however, the forecast is down to 0.1%, from 0.2% in the previous quarter. For 2018, the SNB now expects inflation of 0.5%, compared to 0.6% in the third quarter. The conditional inflation forecast is based on the assumption that the three-month Libor remains at -0.75% over the entire forecast horizon.

The global economy has continued to recover in line with the SNB’s expectations. In the US, third-quarter GDP growth was again significantly above potential. Furthermore, the situation on the labour market continued to improve. The other major economic areas also recorded favourable economic activity in the third quarter. The euro area and Japan continued to register moderate growth, while in China, growth remained strong thanks to a variety of fiscal measures. In the UK, the economic impact of the Brexit decision has so far proved less pronounced than originally feared.

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