Central bank keeps interest rates unchanged

The SNB is keeping interest rates on hold Keystone Archive

The Swiss National Bank has announced that it has decided to continue its current monetary policy, leaving interest rates unchanged.

At a news conference in Bern, the National Bank president, Jean-Pierre Roth, said economic prospects in Switzerland had scarcely changed since March when it lowered the target band for the London Interbank Offered Rate (Libor) at 2.75 per cent to 3.75 per cent.

“The National Bank thus sees no reason at present for a further relaxation of its monetary policy,” Roth said.

The Bank said it was expecting GDP to grow by two per cent in 2001 and by 2.1 per cent in 2002, adding that in the next three years, inflation should amount to between 1.3 per cent and 1.6 per cent.

Roth said the Swiss economy expanded by 2.5 per cent year-on-year in the first quarter.

“If annualised growth rates are compared with the previous quarter, it becomes evident that real GDP has been growing at a practically unchanged rate of approximately 1.8 per cent since mid-2000,” he said.

He added that economic development had therefore been near the long-term potential growth level in the past six months.

“The growth of private consumption again improved somewhat and more or less corresponds to the long term average. By contrast, the growth of investment, notably expenditure on machinery and equipment, has declined substantially. Exports continue to record very robust growth,” he added.

Roth said that the Swiss economy was set to follow this growth path and to enjoy full employment in the next few quarters.

However, he warned that the level of orders on hand and the development of incoming orders pointed to a weakening of export growth. Consumer sentiments, he added, continued to be optimistic and real wage increases were likely to have a positive effect on consumer expenditure of private households.

On average, the National Bank expects a slight rise in inflation of 1.4 per cent this year to 1.6 per cent in 2002.

It says there are two factors contributing to the anticipated temporary rise: an expected rise in housing rental prices, due to the tight real estate market, and a slowing in the fall in prices for telecommunications products and services.

Roth said that the National Bank’s forecast, like every long-term outlook, was “fraught with some uncertainties”. One problem he singled out was oil.

“Should the oil price – contrary to our expectations – increase further in the coming months, our inflation forecast would be too optimistic,” he said.

However, he added that more significant were the risks from the economic slowdown in the United States.

“If the US economy cools more markedly than expected or if the dollar depreciates excessively, then the National Bank would have to reconsider its monetary policy course,” he added.

swissinfo with agencies