MNI SNB WATCH: On Hold, Intervention Risk Increases

The Swiss National Bank left its policy rate unchanged Thursday, but said  its "willingness to intervene in the foreign exchange market has increased" since the outbreak of the Iran war. (See MNI SNB WATCH:  Ready To Intervene In FX, But On Hold For Now )

The SNB kept the policy rate unchanged at 0%, while sight deposits held at the central bank will be remunerated at the SNB policy rate up to a certain threshold. The discount for sight deposits above this threshold still stands at 0.25 percentage points.

President Martin Schlegel told reporters the Board would "continue to monitor the situation closely and adjust our monetary policy if necessary, to ensure appropriate monetary conditions.

Schlegel said the bar to taking the policy rate into negative territory remained high, but underlined that the option was still available.

"Given the conflict in the Middle East, our willingness to intervene in the foreign exchange has increased," Schlegel added.

In its statement, the SNB said it could "counter a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland.“

OUTLOOK

Antoine Martin, Vice Chair of the Governing Board, said the overall economic outlook has become considerably more uncertain. 

"In our baseline scenario, we anticipate that the increase in energy prices will raise inflation in many countries in the short term. Furthermore, global economic growth is likely to temporarily slow somewhat, partly as higher inflation is likely to weigh on consumers' purchasing power," he said, though he noted that fiscal policy and central bank easing in recent years offered some support.

He highlighted growing risks owing to the situation in the Middle East.

"Energy prices could rise more strongly than expected in the baseline scenario, which would considerably increase inflation and substantially constrain economic growth. Potential supply chain disruptions and heightened uncertainty could also weigh on growth". 

The wider trade policy outlook also remains uncertain, Martin said.

INFLATION

Schlegel said inflation has risen slightly since the last monetary policy assessment -- up from 0.0% in November to 0.1% in February -- with the increase driven by higher goods inflation.

"With the rise in energy prices due to the escalation in the Middle East, inflation is likely to increase more strongly in the coming quarters. As a result, our conditional inflation forecast in the short term is higher than in December," he added. 

"In the medium term, it is slightly lower due to the stronger Swiss franc. The forecast is within the range of price stability over the entire forecast horizon and it puts average annual inflation at 0.5% for 2026, 0.5% for 2027 and 0.6% for 2028, based on the assumption that the SNB policy rate is 0% over the entire forecast horizon."