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Financial News: Swiss Central Bank Holds Negative Rates; Lifts Inflation

Swiss Central Bank Holds Negative Rates; Lifts Inflation Forecast

06/21/2018 - 06:44:00 (RTTNews)

(RTTNews) - The Swiss National Bank maintained its negative interest rates while repeating its concerns about a "highly valued" currency, and cited risks from political uncertainty in Italy.

The central bank also upgraded its short-term inflation outlook on rising oil prices.

The interest rate on sight deposits at the SNB 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 Swiss central bank said it will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.

The SNB reiterated that the Swiss Frac remains "highly valued".

The bank viewed that in light of political uncertainty in Italy, the situation on the foreign exchange market remains fragile, and the negative interest rate and willingness to intervene in the foreign exchange market as necessary therefore remain essential.

The bank lifted its inflation forecast for this year to 0.9 percent from 0.6 percent, citing a marked rise in oil prices. For 2019, the bank maintained its outlook at 0.9 percent.

Inflation is seen at 1.6 percent in 2020 compared with 1.9 percent estimated in March.

Although the rise in oil prices has pushed up short-term inflation forecast slightly, SNB Chief Thomas Jordan said, in the longer term, inflationary pressure in Switzerland weakens somewhat due to the muted outlook in the euro area.

With inflation set to remain low for a long time to come, Jessica Hinds, an economist at Capital Economics, said she expects interest rates to be on hold until 2020.

Around the world, central banks have shifted to tightening mode. The U.S. Federal Reserve raised its rate twice this year and the European Central Bank announced its plan to exit quantitative easing this year. Asian central banks are on a rate-hiking spree.

On mortgages and real estate prices, the SNB said it will continue to monitor developments on the mortgage and real estate markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer.

The Swiss economy is forecast to grow around 2 percent for the current year and unemployment is forecast to fall further.

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