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(Bloomberg) -- The Swiss National Bank kept interest rates unchanged at record lows, citing the strong currency and an absence of price pressures.
In a move predicted by all 26 economists in a Bloomberg survey, the central bank held its deposit rate at minus 0.75 percent on Thursday. It also affirmed its commitment to wage currency market interventions and reiterated that the franc was “significantly overvalued.”
“The SNB anticipates that economic developments will remain favorable,” it said in a statement ahead of a 10 a.m. press conference in Bern that will feature SNB President Thomas Jordan and his fellow governing board members. “The cautiously optimistic baseline scenario continues to be subject to considerable downside risks; this is due to political uncertainty and structural problems in a number of advanced economies.”
The central bank has been using a combination of negative rates plus purchases of foreign exchange for two-and-a-half years to limit the franc’s appeal. The rallying currency, sought out by investors at times of heightened risk aversion, has caused consumer prices to tumble and weighs on exporters, as their wares become more expensive abroad.
While the franc has dipped about 1.5 percent against the euro this year as election outcomes in France and the Netherlands helped reduce political risks in the region, it remains stronger than 1.10 against the single currency. That’s far off the minimum exchange rate of 1.20 francs enforced by the SNB between 2011 and 2015.
The Swiss central bank’s decision to stick with its ultra-loose policy comes hours after the U.S. Federal Reserve raised interest rates for the second time this year. Last week, the European Central Bank indicated it may be moving closer to an exit from unconventional stimulus by dropping an option to cut rate from its policy guidance.
What Switzerland and the 19-country euro area have in common is a feeble rate of inflation despite a pickup in economic momentum. ECB President Mario Draghi has bemoaned the lack of convincing signs of a pickup in price growth, but he’s also expressed confidence that as the output gap closes and unemployment falls, inflation rates will climb toward the central bank’s goal.
The SNB’s mandate is for price stability, defined as a positive rate of inflation below 2 percent. It typically keeps mum about the interventions it has waged to stem appreciation pressure on the franc and last publicly acknowledged conducting them after Britain’s vote to leave the European Union almost a year ago. Yet data suggests the SNB’s purchases of foreign exchange have continued since then, pushing its currency reserves to 694 billion francs ($714 billion) in May.
The central bank on Thursday trimmed its inflation outlook for 2018 and 2019. The SNB forecasts growth of roughly 1.5 percent this year, with consumer prices expected to rise 0.3 percent in 2017, 0.3 percent in 2018 and 1 percent in 2019 respectively.
--With assistance from Mara Bernath Corinne Gretler Jan-Henrik Förster Paul Gordon Joel Rinneby Joshua Robinson and Alice Baghdjian
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