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Less aggressive Swiss cenbank still committed to expansive policy

John Revill
·2-min read

By John Revill

ZURICH (Reuters) - The Swiss National Bank dialed back its verbal commitment to foreign currency interventions and raised its inflation outlook on Thursday, although analysts said this shouldn't be seen as signaling the central bank quitting its ultra-expansive policy.

The SNB caused no surprise on Thursday when it kept its policy rate locked at minus 0.75% as unanimously forecast by economists in a Reuters poll.

It reiterated its commitment to the expansive policy it has kept in place since 2015, spearheaded by the world's lowest interest rate.

This was despite the franc losing 3% of its value versus the euro this year as safe-haven inflows eased.

"Despite the recent weakening, the Swiss franc remains highly valued. With a view to stabilising economic activity and price developments, the SNB is maintaining its expansionary monetary policy," the SNB said.

The central bank said it remained committed to currency interventions, albeit using less forceful language than at its last rates decision in December.

Then the bank had said it was willing to intervene "more strongly" in the forex markets, but on Thursday the bank only said it would intervene "as necessary".

"There is a change in their willingness to intervene," said UBS economist Alessandro Bee.

"But this not a change in monetary policy. It just reflects the fact that EUR-CHF is now at a level where the SNB is not willing any more to intervene."

The SNB's currency interventions rose to 110 billion Swiss francs ($117.52 billion) during 2020, its highest level since 2012.

The increased spending inflated the SNB's balance sheet to close to 1 trillion francs, much larger than the size of the entire Swiss economy.

The bank also increased its inflation outlook, primarily due to a rise in oil prices and the weaker franc.

"As long as the SNB sees an increase of the inflation rate as temporary, an increase of the target rates is far away," said St Galler Kantonalbank economist Thomas Stucki.

"The SNB will wait for the ECB, and the ECB will wait for the Fed."

($1 = 0.9360 Swiss francs)

(Reporting by John Revill; Editing by Michael Shields and Gareth Jones)