Swiss central bank signals negative rates for foreseeable future

(MENAFN- Gulf Times) Switzerland's central bank yesterday signaled it will keep interest rates negative for the foreseeable future and is not targeting a specific exchange rate for the "significantly overvalued" franc against the euro.
The export-reliant economy had to absorb a surge in the franc's value after the Swiss National Bank in January abruptly abandoned its cap of 1.20 francs per euro saying it had become too expensive to maintain.
It has imposed negative rates and stressed its readiness to intervene in the currency market to weaken the franc.
As expected, it maintained these policies at its quarterly policy meeting, saying the franc remained too strong even though the euro rose above 1.10 francs last week for the first time since the cap was scrapped. The franc strengthened slightly against the euro immediately after the statement.
In an interview with Swiss radio, SNB chairman Thomas Jordan said rates would remain in negative territory for the "foreseeable future" in a bid to make the franc less attractive.
He also rejected suggestions that the SNB has an exchange rate in mind for the franc against the euro when intervening.
"We have no such target," Jordan said. "We have a policy that takes consideration of the difficult situation."
JP Morgan described the SNB's policy statement as "neutral". "There is absolutely no suggestion that the SNB is minded to cut interest rates any deeper," JP Morgan wrote in a note.
Pressed on when the SNB could take rates out of negative territory, Jordan said it would be guided by the inflation outlook. Its goal is to keep inflation under 2%.
"Our mandate is price stability," Jordan said. "If we see that we have a monetary policy which is too loose, then of course we need to adjust our monetary policy."
With oil prices near multi-year lows, lowering the cost of production, and the weaker euro making for cheaper imports, the SNB forecast deeper deflation in 2015 and 2016.
For this year, it deepened its forecast by 0.2 percentage points to 1.2%. For 2016, it dropped to 0.5% from 0.4%.
In its policy statement, the SNB kept its target range for three-month Libor at -1.25 to -0.25%, as analysts polled by Reuters had expected. It maintained a 0.75% charge on some cash deposits at the SNB.
Its decision comes hours before the US Federal Reserve decides whether to raise rates, which could take some pressure off the franc.
The SNB said the global economic recovery was "fraught with risks" and shifted focus to the situation in China, where concern over growth has rocked global markets.
"It's a very cautious statement," said Alessandro Bee, an economist and fixed-income specialist at Bank J Safra Sarasin. "The source of the main risk has changed. In the last quarters, it was Greece. Now, Greece has disappeared and the risk has moved to China."
Economists are now keen to see whether the European Central Bank steps up its quantitative easing program to spur the economy.