SNB Keeps Monetary Policy Unchanged, Raises Inflation Forecast

on Mar 26, 2021
Updated: Dec 19, 2022

The trading week that is just about to end was full of interesting events, although not monetary policy related – a ship blocked the Suez canal, the EU Summit started yesterday, COVID-19 third wave ravages Europe. That is enough on every trader’s table, but one central bank did release its outlook this week – the Swiss National Bank (SNB). 

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The SNB is one central bank like no other. Its shares are listed on the local stock exchange, for instance. Also, it is a major investor in overseas assets (e.g., the U.S. stock market). Finally, it makes no secret from its constant intervention in the FX market to the local currency’s detriment, the Swiss Franc (CHF).

All these make the SNB announcements interesting to watch. Moreover, this is a central bank that releases its outlook only four times a year (i.e., quarterly), less often than the Fed, the ECB, or other major central banks do. Hence, when the SNB is on the wires, traders listen.

SNB Keeps the Policy Rate to -0.75%

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At every quarterly meeting and monetary policy decision, the SNB also reveals its forecast for the period ahead. The market participants focus on the inflation forecast and how the central bank sees the policy rate in the years ahead.

Inflation is on everybody’s lips these days due to the excessive spending of many governments to sustain households and businesses during the COVID-19 pandemic. If in the Euro area the ECB expects inflation to shoot higher in the months ahead, the SNB sees only moderate increases in the years ahead. For example, the Swiss central bank sees inflation reaching only 0.5% by 2023, way lower than its mandate.

As such, the SNB kept the sigh deposit interest rate unchanged, at negative 0.75%. It is worth mentioning that this is the lowest interest rate in the world, and the SNB holds the record of months with the main rate in negative territory. Other central banks (e.g., the Bank of England) closely monitor the economic developments under a negative rate environment, and the SNB, as well as the ECB, are on the watch list.

Another important point from yesterday’s report is that the SNB sees 2021 growth close to 3% for the year – unchanged when compared to the December 2020 forecast. As expected, the CHF pairs were unfazed by the announcements, as nothing new was revealed by the SNB.


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