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(Bloomberg) -- The Swiss National Bank tweaked its assessment of the franc’s level, saying that the currency’s decline against the euro is helping curb its “significant overvaluation.”

“Since the last monetary policy assessment, the Swiss franc has weakened against the euro and appreciated against the dollar,” the central bank said in a statement on Thursday. “Overall, this development is helping to reduce, to some extent, the significant overvaluation of the currency. The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile.”

The change in language is a baby step away from the policy of negative interest rates and interventions the SNB put into force in early 2015. The term “significantly overvalued” has featured in its verbal repertoire on the franc since then.

The SNB kept its deposit rate at a record low of minus 0.75 percent, as forecast by all 26 economists in a Bloomberg survey. It also reiterated its pledge to buy foreign currencies.

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 its scrapping of the 1.20-per-euro currency ceiling -- playing into the hands of the SNB, which has been trying to stem its rise for years.

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 predicts growth of just under 1 percent this year, with consumer prices foreseen increasing 0.4 percent in 2017 and 2018 and 1.1 percent in 2019.

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.

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.

The SNB maintained its target range for three-month Libor at between minus 0.25 percent and minus 1.25 percent.

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.

“The SNB will not raise its interest rates before the ECB,” Valentin Bissat of Mirabaud Asset Management said prior to the decision.

--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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