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SAGBs Pause for Breath, 10 Y 30Y Yields Run Into Support

MNI (London)
By Luke Heighton
     FRANKFURT (MNI) - The Swiss National Bank left key interest rates unchanged
Thursday, lowering their medium-term growth forecasts due to the global
slowdown, a dip in oil prices, political uncertainties and protectionism and
warning the balance of risks the economy faces are now tilted to the downside.
     The SNB left the interest rate for sight deposits unchanged at -0.75%, with
the target range for three-month Libor unchanged at -1.25% to -0.25%. The SNB
said it will remain active in the foreign exchange market, as necessary, while
taking the overall currency situation into consideration.
     Here are the key points from December's monetary policy report:
     -- The SNB still anticipates inflation of 0.9% for 2018. However, the
forecast for 2019 was revised down from 0.8% to 0.5%. For 2020, inflation of
1.0% is expected, compared with September's forecast of 1.2%, based on the three
month Libor remaining at -0.75% over the entire forecast horizon.
     -- Swiss GDP fell by an annualized rate of 0.9% in Q3, but was still 2.4%
higher year-on-year. Such a slowdown was "to be expected after several very
strong quarters", and attributable to "temporary factors," including such global
factors as the slowdown in the German car industry and recent extreme weather in
     -- Annual GDP growth for 2018 of 2.5% is expected, the lower end of
September's assessment of 2.5-3%, with a rise of "around 1.5%" anticipated next
year. "As in other countries, economic momentum is likely to weaken somewhat in
2019 [...] In particular, a sharp slowdown internationally would quickly spread
to Switzerland", the SNB noted.
     -- Global growth "lost momentum somewhat in the third quarter", the SNB
said, but the global economy continues to expand "somewhat above potential,"
leaving the growth outlook for the coming quarters "solid". Nevertheless,
political uncertainties (including Brexit) and protectionism have had an
"increasingly negative effect" on business and market sentiment, and pose
"significant risks" to the SNB's baseline scenario.
     -- The Swiss franc lost value against the dollar in September and remains
"highly valued". The situation on the foreign exchange market "continues to be
fragile". SNB chairman Thomas Jordan said the Bank "still has room to react to
shocks" including extending the balance sheet and lowering rates further. There
is at present "no need to change monetary policy" he added, but any signs the
ECB were normalizing euro area monetary policy would be "good sign" that the SNB
could begin to contemplate a similar move.
     -- "Brexit is a risk that we see some turbulences in financial markets,"
Jordan said. "We already saw in the past few days certain movements where the
Swiss franc appreciated vis-a-vis other currencies, not only vis-a-vis the
pound, and this is for us the biggest risk - that we see some turbulences where
the exchange rate movement of the pound is not against all currencies but
especially vis-a-vis the Swiss franc. So far that is limited, but we cannot
exclude that certain turbulence will become bigger."
     -- Imbalances in Switzerland's mortgage and real estate markets persist.
Prices in the residential investment property segment have stabilized, but the
risk of a correction due to strong price increases in recent years and growing
vacancy rates remains. Recent lending patterns have shown a "slight increase in
risk," vice chairman Fritz Zurbruegg said. However, "it is important to
distinguish between financial stability risks and monetary policy risks", he
--MNI Frankfurt Bureau; +49-69-720-146; email:
--MNI London Bureau; +44 203 865 3829; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
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