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(Bloomberg) -- The Swiss National Bank’s word reshuffle on Thursday may only be a baby step toward normalization, but it’s still loaded with ambition.

The franc’s drop against the euro “is helping to reduce to some extent, the significant overvaluation of the currency,” according to officials whose previous refrain was simply to complain that it was “significantly overvalued.” The new conjugation may look similar, but it also hints at the hopes of a central bank that would dearly love to shake off the shackles of an exchange-rate regime that has kept monetary policy in a deep freeze of ultra-low rates.

“I’d say it’s a first step in the direction of normalization,” said Stefan Grosse, economist at Nord LB in Hanover. “ The franc hasn’t hasn’t yet reached the level they’d like, but it’s a step.”

Officials at the mercurial central bank, led by President Thomas Jordan, have used the “significantly overvalued” language in their verbal repertoire since early 2015, when massive fund inflows forced them to drop their currency cap and impose a policy of negative rates, laced with foreign-exchange interventions. On Thursday, they reiterated their threat to keep that up as they left borrowing costs unchanged and relabeled the franc with the slightly less extreme description of “highly valued.”

“The situation on the foreign exchange market is still fragile,” the SNB said. “The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary therefore remain essential in order to reduce the attractiveness of Swiss franc investments and thus ease pressure on the currency.”

An abatement of risk aversion and better economic momentum in the single currency area have caused the franc to drop more than 6 percent against the euro this year. It dropped to 1.15380 per euro in early August -- a level not seen since the SNB scrapped its 1.20-per-euro currency ceiling -- playing into the hands of the central bank, which has been trying to stem its rise for years. The franc was down 0.3 percent at 1.14983 per euro at 11:58 a.m. in Zurich.

Yet inflation remains feeble in Switzerland and economic growth fell short of that in the neighboring euro area during in the first half of 2017. The SNB cut its GDP outlook for this year and now predicts an expansion of just under 1 percent, compared with a previous forecast of roughly 1.5 percent. Consumer prices are foreseen increasing 0.4 percent in 2017 and 2018 and 1.1 percent in 2019, it said.

An uptick in risk aversion -- caused for example by another North Korean missile test -- could cause the franc, considered by foreign currency traders to be a haven at times of market stress, to appreciate again. And although the franc has dipped against the euro, it has appreciated against the dollar in recent weeks, as the SNB acknowledged.

It kept its deposit rate at a record low of minus 0.75 percent, as forecast by all economists in a Bloomberg survey. It also maintained its target range for three-month Libor at between minus 0.25 percent and minus 1.25 percent.

“For us, it’s not yet a sign that a monetary policy switch lies in store, since they said the foreign currency market situation remains fragile,” said Alessandro Bee, an economist at UBS Group AG in Zurich. “They’d want to see the weaker franc become sustainable before they adjust monetary policy.”

While European Central Bank and SNB policy makers are battling weak price pressures, soaring inflation in Britain may prompt Bank of England officials to call for tighter policy later on Thursday.

The SNB is aiming to achieve a positive annual rate of inflation below 2 percent. It has been using interventions to stoke consumer price pressure, causing its holdings of foreign currency to balloon to 717 billion francs ($744 billion). The negative interest rates is designed to maintain the rate differential with the euro area, making franc-denominated assets less attractive for investors.

Economists expect the SNB only to begin tightening once the ECB in Frankfurt starts to normalize policy. President Mario Draghi reiterated last week the asset purchase program would run until at least the end of this year, and that interest rates would remain at their current record-lows “well past” the end of quantitative easing.

“They’ll be very happy if this situation persists of a somewhat weaker franc,” Credit Suisse International Wealth Management Chief Economist Oliver Adler said in a Bloomberg radio interview with Anna Edwards. “That will simply mean that they don’t have to intervene any more, but actively they will not do anything in our view. They will certainly not move interest rates in our view ahead of the ECB.”

--With assistance from Mara Bernath Jurjen van de Pol Alice Baghdjian Marco Babic Jan Dahinten Joel Rinneby Harumi Ichikura Alessandro Speciale and Lukas Strobl

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss, Craig Stirling

©2017 Bloomberg L.P.

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