The Swiss National Bank’s decision to leave interest rates on hold and pledge continued currency intervention was as expected. The Bank may have drawn some comfort from the franc’s recent decline against the US dollar. But the currency’s strength against the euro and associated deflation risks suggest that Swiss monetary policy will remain extremely loose for the foreseeable future. The interest rate on sight deposits was kept at a record low of -0.75%, while the target range for the three-month Libor was unchanged at between -1.25% and -0.25%. The SNB also restated its commitment to “remain active in the foreign exchange market as necessary”. The Bank has intervened by buying foreign currency-denominated assets on several occasions over recent months to prevent safe-haven flows in response to political events abroad from pushing the franc higher.
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