As widely expected in the market, the Swiss National Bank decided to keep the three-month Libor Target near zero after the surprising move in August to shelter the recovery from the rising pressure of the franc's appreciation.
The SNB decided to keep the three-month Libor target at the range of 0.0-0.25% after the unexpected move in August. The bank returned to intervene in the market with the rapid appreciation of the franc that reached new records versus the dollar and the euro which increased deflation pressures and increased the downside pressure on growth.
Already the SNB had provided the most of its policy action to the franc's rally starting as we said with the August 03 move to cut the rates to 'as close as zero as possible' while also increased banks' sight deposits to 200 billion francs from 30 billion francs to increase the supply to halt the gains.
The move from the bank then was not enough to halt the rally as the franc continued to find strong demand amid worsening global financial market conditions and the deepening debt crisis in the euro area, making the franc a favorite haven asset.
Recently, on September 06, the SNB stepped up the intervention by setting 1.20 floor for the EUR/CHF which immediately lifted the pair since then above the new floor, as the back said it is 'aiming for a substantial and sustained weakening of the franc.' The bank also stated the readiness to buy unlimited quantities of foreign currencies to weaken the franc.
In its monetary assessment the SNB reasserted the commitment to its recent measures, saying that it will defend the minimum franc rate set with all consequence. The bank expects the economy to expand 1.5-2.0% this year from a previous 2.0% forecast.
As for inflation, the bank sees slower price pressures with inflation at 0.4% in 2011 versus 0.9% previously projected and for 2012 inflation at -0.3% versus 1.0% and in 2013 at 0.5% versus 1.7% as the bank stressed that there is no inflation risk in foreseeable futures providing more room for interventions.
The Swiss economy remained resilient to the franc's rally yet surely the pressures have increased, especially with debt challenges and weak growth in its biggest trading partners that is hammering exports which account for nearly 50% of the GDP.
Growth in the second quarter slowed to 0.4% from 0.6% in the first three months where exports were hammered by the franc and fell 1.3% opposed to 3.4% rally in the first quarter. Consumer confidence and spending weakened and the outlook worsened.
The SNB is to remain vigilant and ready to act in the coming period as the global recovery remains shaky and losing momentum while the debt crisis is a main threat to the Swiss economy with risk to the financial sector stability and also to its biggest exports markets.
