MNI REVIEW: SNB Holds Rates; Ups FX Action, Exemption Levels

By Luke Heighton

     FRANKFURT (MNI) - The Swiss National Bank held key interest rates at -0.75%

Thursday, but pledged to "intervene more strongly" in foreign exchange markets

and announced plans to raise the exemption threshold on negative interest for

banks, from a factor of 25 to 30, from April 1.

     The possibility of relaxing the countercyclical capital buffer is also

being examined, the SNB said, "despite the risks on the mortgage and real estate

markets."

     The Swiss franc has become "even more highly valued" since the outbreak of

the Covid-19 pandemic, the Bank said, while growth and inflation forecasts have

become "extremely difficult" and subject to an "unusually high" level of

uncertainty.

     The inflation forecast for 2020 was lowered from 0.1% to -0.3% - due

primarily to lower oil prices, significantly weaker growth prospects and the

stronger franc - and from 0.5% to 0.3% in 2021, before rising to 0.7% in 2022 -

consistent with the December assessment.

     Switzerland's short-term growth outlook has worsened "markedly," with GDP

growth "likely to be negative for the year as a whole" even after a "likely",

albeit "gradual," return to normality.

     However,the return to normality from the second half of the year onwards

"could thereafter be reflected in strong positive growth in 2021," the Bank

said.

     Despite the "exceptionally large challenges" posed by the effects of the

Covid-19 pandemic on the Swiss economy, the Swiss financial system has

sufficient liquidity, the SNB concluded. At the same time, the SNB "will take

additional steps to ensure liquidity as necessary" in addition to providing

liquidity as part of the extended swap arrangements with other central banks,

particularly in U.S. dollars.

     The SNB's annual financial statements for 2019 reported a profit of CHF48.9

billion, following a loss of CHF14.9 billion in 2018. After taking into account

the distribution reserve of CHF45.0 billion, the net profit came to CHF88.0

billion.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

[TOPICS: MT$$$$,MX$$$$]