Swiss central bank is sounding dovish – ING

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Charlotte de Montpellier, economist at ING, points out that as per expectations, the Swiss central bank left its key interest rate unchanged at -0.75% and remains ready to intervene in the foreign exchange market if necessary.

Key Quotes

“As with every monetary policy assessment for the last two years, it still considers that the franc is highly valued and that the situation on the foreign exchange market remains fragile.”

“However, the central bank has revised its conditional inflation forecasts downwards, assuming the SNB’s key interest rate remains constant at its current level.”

“It now forecasts an inflation level of 0.4% in 2019, 0.1% in 2020 and 0.5% in 2021. These downward revisions can be seen as a rather dovish signal from the SNB because the very low level of these forecasts implies that monetary policy can only remain extremely accommodative in the coming years.”

“We expect rates to remain unchanged at its current level of -0.75% in the coming years. Nevertheless, risks are on the downside, which means that if the Swiss economy is hit by a negative shock or if the franc appreciates too much, the central bank could be forced to lower its key interest rate even further, possibly to -1%.”

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