The Situation in Europe Remains Difficult says Swiss Central Bank

As concerns and uncertainties still lurk in Europe, the Swiss National Bank’s monetary policy framework must remain “expansionary”, its chairman explained to the media on Thursday.

“The situation in Europe remains more difficult and that’s exactly the reason why monetary policy in Europe remains expansionary and that also means that we have to continue maintaining negative interest rates in Switzerland,” Thomas Jordan, chairman of the Swiss National Bank, said in a TV interview.

Leaving its interest rates unchanged at record-low levels, earlier, the Swiss central bank decided to stand pat on its monetary policy. As was widely expected, the SNB left its deposit rate at a negative 0.75 percent on Thursday.

Its current expansionary monetary policy is expected to help prop up economic activity and help keep an eye on the Swiss franc and it would remain active in the foreign exchange market, the SNB said in the bank’s latest statement.

“Our monetary policy is expansionary and it has to remain expansionary because we still have a very difficult situation: We have negative inflation, we have a negative output gap and the Swiss franc remains significantly overvalued,” he added.

Meanwhile, in what is the second time it had done so in a decade, the U.S. Federal Reserve decided to raise interest rates by 25 basis points on Wednesday. Investors weren’t expecting three planned hikes for 2017 even while the market had already priced this in. However, the Fed’s recent moves highlight that the U.S. economy is on track as far as the SNB’s chairman is concerned.

“It’s very positive that the U.S. economy is on track. The decision by the Fed shows that the situation is improving and this is a very positive sign, not only for Switzerland but for the world economy as a whole.”

While political risk both inside and out of Europe is expected to linger in the coming year, 2016 has been a political and economic whirlwind for markets, businesses and countries worldwide. Reuters reported that after the Swiss franc came under upward pressure following the Brexit vote, the central bank confirmed that it had intervened in the currency market.

The central bank would try to stabilize the currency in the case high volatility and would continue its strategy going forward. The economic impact of the Brexit outcome however had “proved less pronounced than originally feared” at present, the institution said on Thursday’s policy release.

For the central bank and trade, a Donald Trump presidency may mean another area of unknown for the global economy. The chairman said that the Swiss economy had a big interest in international trade and hoped for “no additional protectionist measures” but added that it was “too early” to provide a definite answer.

Even as the SNB did however trim its inflation expectations for 2017 and 2018, forecasting GDP (Gross Domestic Product) to grow around 1.5 percent for 2017 like it expected for 2016 as 2017 approaches, the Swiss central bank’s outlook remains “cautiously optimistic”.

(Adapted from CNBC)


Categories: Economy & Finance

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