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Swiss Central Bank Maintains Status Quo

The Swiss National Bank continued to maintain its expansionary monetary policy, while its major counterparts resorted to tightening amid the war driven inflationary risks.

Policymakers of the central bank decided to retain the policy rate and interest on sight deposits at the SNB at -0.75 percent.

The bank repeated that it is willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc. It takes the overall currency situation and the inflation rate differential with other countries into consideration.

The central bank reiterated that the Swiss franc remains highly valued.
The SNB will probably continue to be relaxed about the value of the franc throughout 2022, Charlotte de Montpellier, an ING economist, said.

It is likely to accept a stronger franc, intervening less on the foreign exchange markets, in order to keep inflation under control without tightening financing conditions, the economist added.

David Oxley, an economist at Capital Economics, said the SNB is likely to continue to tread water this year, but to take the cover afforded by the more hawkish global backdrop and European Central Bank to back away from its extreme policy footing next year.

Russia’s invasion of Ukraine has led to a strong increase in uncertainty worldwide. Against this backdrop, the SNB with its monetary policy is ensuring price stability and supporting the Swiss economy, the bank added.

The bank upgraded its inflation outlook for this year due to the significant increase in prices for oil products and goods affected by supply bottlenecks. Inflation is forecast to rise to 2.1 percent this year instead of 1.0 percent projected in December.

For 2023, inflation outlook was lifted to 0.9 percent from 0.6 percent. Inflation is expected to remain at 0.9 percent in 2024.

Economic growth momentum remained positive through to February 2022. The SNB noted that the war in Ukraine has had an effect on the Swiss economy above all via the strong increase in commodity prices.

The central bank anticipated GDP growth of around 2.5 percent, down from the prior forecast of about 3 percent.

It is difficult to assess the future course of the war and its economic impact. The risks to growth are considerable and to the downside, the SNB observed.
The momentum on the mortgage and real estate markets has continued, and the vulnerabilities have increased further overall. The bank said it will continue to monitor developments on the mortgage and real estate markets closely.

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