SNB Holds Interest Rates Steady, President Says Inflation Not Enough For Monpol Shift
The Swiss franc is losing local purchasing power at a much lower rate than many other currencies.

- SNB President Jordan: "no need" to change rates

- Benchmark rate held at global low -0.75pct

- Bank repeats readiness to intervene on FX markets

- Franc “highly valued” despite apprecation

 

By Eric Culp, European Editor

LiveSquawk News

@EricCulpLS

 

16 December 2021 | 10:40 GMT

 

As expected, the Swiss National Bank left its main interest rates unchanged at a global low -0.75% Thursday, and bank president Thomas Jordan said they will remain where they are despite rising inflation.

 

Jordan said that even though other central banks such as the US Federal Reserve are signalling rate hikes due to unprecedented consumer price growth, inflation in Switzerland is expected to remain relatively low and under what the SNB considers levels of price stability. “There is no need to change interest rates,” he said and reiterated the bank’s commitment to expansionary monetary policy.

 

In the US, where headline inflation approached a 40-year high last month, the Fed said Wednesday that it would end its pandemic bond purchases in March, with officials there seeing as many as three rate hikes in the coming year. On Thursday, Norway’s central bank raised its benchmark rate 25 basis points to 0.5%. Last month, annual inflation in the Nordic country hit its highest mark in 13 years.

 

Inflation is also increasing in Switzerland, but not as much by far as in other countries. The SNB has raised its inflation forecasts for this year and next, but a bank chart shows annual price growth in the Alpine country peaking at just below 1.5%. By comparison, US inflation last month hit 6.8%, and Norway’s rate ballooned to 5.1%.

 

An inflation forecast many countries are likely wishing for at the moment.

Justifying the “highly valued” classification

Jordan explained why the bank still sees the franc as highly valued even though EUR/CHF was trading around 1.045 in Europe on Thursday morning after moving above 1.10 before the pandemic. He said the bank remains concerned even though the currency has appreciated by a further 3% in nominal and trade-weighted terms since September and by some 6% since the beginning of the pandemic. “The reason is inflation abroad, which is at present noticeably higher than it is in Switzerland,” Jordan noted. “The nominal appreciation therefore does not entail an appreciation to the same extent in real terms. The real trade-weighted Swiss franc exchange rate – which takes into account the inflation rate differential with other countries – has hardly changed since the beginning of the pandemic.”

 

The SNB president rebuffed suggestions that the bank’s recent low activity on currency markets somehow indicates policymaker apathy toward exchanges rates. “We care a lot about the level of the Swiss franc,” he said, calling intervention “a crucial element of our monetary policy”.

 

Jordan noted that the bank has no target exchange rate in mind for the franc but uses price stability as a guide for actions on currency markets.

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