Swiss central bank leaves key rates unchanged

Thursday 20 March 2014 12.16
Swiss central bank repeats promise to stop the Swiss franc gaining too much value
Swiss central bank repeats promise to stop the Swiss franc gaining too much value

Switzerland's central bank today kept its key interest rate unchanged and restated its longstanding pledge to prevent the Swiss franc from gaining too much value.

The Swiss National Bank (SNB) held its target range for the franc's three-month London interbank offered rate, known as the Libor rate, at between 0.0 and 0.25%, a bank spokesman said.

The bank also reiterated that it was maintaining an exchange-rate floor of 1.20 francs to the euro.

SNB introduced the floor in September 2011 as a strengthening franc was creating headaches for exporters, whose margins were eroded by unfavourable exchange rates.

The Swiss franc is traditionally seen as safe haven by the markets in tough times, and investors unsettled by the euro zone debt crisis and uncertain global economic climate flocked to the currency, driving up its value.

The ongoing crisis in Ukraine has also led to intermittent spikes in the value of the franc, pushing it closer to the 1.20 limit.

"The minimum exchange rate continues to be the right tool to avoid an undesirable tightening of monetary conditions in the event of renewed upward pressure on the Swiss franc," the SNB said.

It stressed it was prepared to purchase "foreign currency in unlimited quantities and to take further measures" to defend the floor.

The SNB also maintained its forecast for economic growth in Switzerland this year, saying it still expects the wealthy Alpine nation's gross domestic product to rise 2% in 2014.

That forecast is slightly lower than the 2.2% growth recently forecast by the Swiss government, which expects an anticipated pick-up in exports this year to boost the growth rate.

The SNB also said the "moderate recovery of the global economy" was continuing, but warned that "there are still substantial risks attached to the global economic recovery." 

A decline in inflation in most advanced economies had for instance "increased uncertainty regarding the future path of monetary policy in the major currency areas," it said.

The central bank itself revised down its inflation forecast, saying today it now expects prices in Switzerland to stagnate completely this year instead of rise by 0.2% as expected in December.

For next year, inflation is now expected to come in at just 0.4%, down from a previously forecast 0.6%, while prices should swell a full 1% in 2016, the bank said.