Swiss National Bank Leaves Rates Unchanged

Market Trends - 17/03/2016

The Swiss National Bank's quarterly monetary policy assessment today saw the SNB leaving the 3-month LIBOR rate unchanged at -0.75% as widely expected on the sight deposits and the target rates unchanged at -1.25% -to -0.25%. The decision to leave rates unchanged came against the Euro's appreciation last week after the ECB unveiled a host of new easing measures which in turn helped the Swiss Franc from falling further against the Euro. The SNB however reiterated the view that that Swiss Franc remained overvalued against a basket of currencies and that the central bank would intervene in the currency markets when needed.

Ahead of the SNB's decision, the Swiss producers price index data released today showed a decline of -0.60% on a month over month basis and 4.60% decline on a year over year basis suggesting that consumer prices could continue to weaken in the months ahead while the Swiss Franc remains stronger. Meanwhile, in a report released today, the Swiss government expects a gradual pickup in economic growth in Switzerland after a below trend GDP growth rate of 0.90% in 2015. The unemployment rate fell to 3.40% in February on a seasonally adjusted basis, while falling to 3.70% on a non-seasonally adjusted basis.

The projected GDP is expected to show growth in 2016 at 1.40% and 1.80% in 2017. The unemployment rate was projected to rise moderately to 3.60% in 2016 and is projected to improve only in 2017 to 3.5%. The data released by the economic affairs ministry also said that the negative effects of the stronger Swiss Franc exchange rate could diminish in the course of 2016 - 2017.

The Swiss Franc's response remained muted to the SNB's announcement as the currency continued to stay stronger against most currencies. USDCHF continued to decline strongly following yesterday's dovish FOMC meeting where the Fed cut its rate hike forecasts from projected four rate hikes in the December forecasts to only two rate hikes for the remainder of 2016. USDCHF is currently trading close to a 4-week low at 0.969.


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