Swiss National Bank maintains loose monetary policy

The bank said it was willing to intervene in the foreign exchange market "as necessary" to mitigate upward pressure on the franc. Keystone / Peter Klaunzer

The Swiss National Bank has decided to stick to its expansionary monetary policy, a day after the US Federal Reserve announced it was tightening monetary policies amid rising inflation.

On Thursday, the SNB announcedExternal link it was keeping the monetary policy rate at -0.75%. In doing so the bank wrote in a press release that it is “ensuring price stability and supporting the Swiss economy” in its recovery from the impact of the coronavirus pandemic”.

The central bank also kept its description of the franc as “highly valued” – the same wording used in 2017. Since that time, the Swiss franc, considered a safe-haven currency in times of crisis, has appreciated 10% versus the euro to reach its highest level since July 2015.

The bank also said it was willing to intervene in the foreign exchange market “as necessary” to mitigate upward pressure on the franc. The SNB bought foreign currencies for almost CHF110 billion ($119 billion) in 2020.

SNB president Thomas Jordan conceded that it is difficult to interpret the evolution of exchange rates because of different levels of inflation. While inflation has accelerated sharply in the US and in the euro zone, it stood at 1.5% in Switzerland in November.

Jordan believes that the acceleration of prices “will soon reach its peak and will decline over the next year”.

The SNB adjusted its inflation forecast due to higher import prices for oil and goods affected by supply chain issues. Inflation expectations stand at 0.6% for 2021, 1% for 2022 and 0.6% for 2023. At its previous meeting in September, the Swiss central bank forecast inflation of 0.5% for 2021, 0.7% for 2022 and 0.6% for 2023.

The announcement comes at a time when many central banks are under pressure to respond to rising inflation. The US Federal Reserve signaled on Wednesday that it plans to raise rates in 2022 and end asset purchases earlier than planned. However, the SNB is guided primarily by the European Central Bank, which is expected to announce possible monetary policy changes on Thursday.