Switzerland’s central bank maintained its negative interest rates and trimmed its inflation forecast, suggesting that the current expansionary stance is set to remain well into 2019.
The interest rate on sight deposits at the Swiss National Bank was retained at -0.75 percent and the target range for the three-month Libor was kept unchanged between -1.25 percent and -0.25 percent.
The central bank said it will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.
The bank repeated that the Swiss franc is “highly valued.”
The negative interest rate and the willingness to intervene in the foreign exchange market are necessary to keep the attractiveness of the Swiss franc investments low and ease pressure on the currency, the SNB said.
Citing the franc’s appreciation, the central bank lowered its inflation forecast for 2019 to 0.8 percent from 0.9 percent. The estimate for 2020 was downgraded to 1.2 percent from 1.6 percent.
However, inflation forecast for 2018 was maintained at 0.9 percent.
Despite a downward revision to the 2020 forecast, the SNB is overestimating the pick-up in inflation, Jessica Hinds, an economist at Capital Economics, said.
The economist expects the SNB to stick to its dovish policy stance for a long time to come. Accordingly, Hinds sees the first rate hike to come no sooner than the first quarter of 2020.
The SNB said leading indicators signaled favorable economic outlook. But some loss of momentum is expected due to a slight slowdown in global growth and the dampening effect of recent Swiss franc appreciation.
The central bank forecast GDP growth of between 2.5 percent and 3 percent for the current year and a further slight fall in unemployment. In June, the bank had estimated around 2 percent expansion.
The government forecast the economy to grow 2.9 percent this year and 2 percent next year on foreign trade and business investment.