MNI REVIEW: SNB On Hold; Inflation, GDP Forecasts Inch Higher

The Swiss National Bank kept interest rate policy on hold Thursday and said the Swiss franc remains "highly valued," albeit amid high levels of uncertainty, noting policymakers remain "willing to intervene more strongly in the foreign exchange market" if needed.

Alongside the policy decision, the SNB also increased its forecasts modestly for both growth and inflation. CPI is seen at -0.6% this year, followed by +0.1% in 2021 and +0.2% in 2022 - an increase of 0.8%, 0.4% and no change, respectively. Previously the SNB had not expected inflation to become positive until 2022. GDP, which fell more than 10% below its pre-crisis level in Q2, is now expected to drop by around 5% across 2020 as a whole.

The SNB attributed the improving outlook, with inflation expected to move back into positive territory next year, to a rise in oil prices, and warned of a continuing high degree of uncertainty despite "significant" pick-up in economic activity in Switzerland since health restrictions were eased in May.

VIRUS

"In its baseline scenario for the global economy, the SNB anticipates that it will be possible to keep the pandemic under control without a renewed serious impairment of economic activity," the Bank said in a statement.

The economic recovery should thus continue into Q3, it added, with a "strong" rise in inflation expected later this year and into 2021, following a downturn in the first half of this year that proved to be "somewhat less strong than feared."

Also highlighted were the risks posed by a rapid increase in infections that could necessitate renewed containment measures, and trade tensions, and potential downside risks. On the upside, economic policy measures introduced in many countries could support the recovery more strongly than expected.

Swiss mortgage lending and residential property prices continued to rise during the second quarter despite a strong decline in GDP. "Imbalances thus persist on these markets and continue to present risks for financial stability," the SNB statement said.

From September 30, the SNB will publish information on the conditions and volume of individual monetary policy-related transactions at the end of each month for the previous month. The volume of foreign exchange market operations, which was previously only made public annually, will now be disclosed at the end of each quarter for the previous quarter, a separate statement published shortly after the monetary policy assessment announced.