The Swiss central bank decided to continue with its record low negative interest rates and currency interventions despite being labeled as ‘currency manipulator’ by the United States.
At the virtual meeting, policymakers of the Swiss National Bank retained the policy rate and interest on sight deposits at the SNB at -0.75 percent, as widely expected, on Thursday.
As the Swiss franc is highly valued, the central bank reiterated that it is willing to intervene more strongly in the foreign exchange market. In so doing, it takes the overall exchange rate situation into consideration.
The bank said its expansionary monetary policy provides favorable financing conditions, counters upward pressure on the Swiss franc, and contributes to an appropriate supply of credit and liquidity to the economy.
Looking ahead, the SNB will brush off being branded a ‘currency manipulator’ by the US Treasury, but is still likely to be less active in the FX market next year, David Oxley, an economist at Capital Economics, said.
The economist said the central bank will be able to dial back its FX interventions next year as the pick-up in risk sentiment will relieve pressure on the franc against the euro and not because of the US Treasury’s actions.
Consumer prices are forecast to fall 0.7 percent this year and to remain flat next year. In 2022, prices are projected to climb 0.2 percent.
In September, the bank had projected a 0.6 percent drop in prices for 2020 and +0.1 percent for 2021.
Further, the bank expects economic momentum to be weak in the fourth quarter of 2020 and in the first quarter of next year due to new restrictions imposed to control the Covid-19 pandemic.
The SNB expects that GDP to shrink by around 3 percent this year.
Developments going forward largely depend on how successfully the spread of the virus can be contained in Switzerland and abroad.
The economic recovery is expected to regain momentum in the course of next year. The SNB forecast economic growth of 2.5 percent to 3 percent for 2021.