SNB May Keep Main Rate Near Zero as Economy Recovers
The Swiss central bank may leave its benchmark interest rate near zero today to bolster a recovery from the worst recession in more than three decades.
The Swiss National Bank, led by Philipp Hildebrand, will leave the three-month Libor target rate at 0.25 percent at its quarterly monetary assessment, according to all 19 economists in a Bloomberg News survey. The central bank announces the decision at 2 p.m. in Zurich.
The SNB has held its main rate close to zero for a year and sold Swiss francs to keep a lid on the currency and counter the threat of deflation. While SNB board member Thomas Jordan said last month that it’s too early to start raising borrowing costs, the central bank has already softened its tone on currency interventions as the economy gathers strength.
“They will continue pointing to the risks to the economy, but the statement will be on a more positive note,” said Fabian Heller, an economist at Credit Suisse Group AG in Zurich, who sees the SNB rate unchanged until “at least” September. “They will maintain their language on the currency” though policy makers may become “more tolerant” of a further appreciation over time, he said.
‘Excessive Appreciation’
The franc was little changed today, at 1.4616 per euro as of 7:39 a.m. in Zurich from 1.4611 yesterday. It strengthened earlier to 1.4606, the highest since before the SNB began selling the currency in March 2009.
The SNB relaxed its language on the franc at its last assessment in December, saying it would act to prevent “any excessive appreciation” of the currency. It had previously pledged to prevent “any appreciation.” Since then, the franc has gained 3.3 percent versus the euro. It has also been boosted as concern over Greece’s ability to tackle its budget deficit drove investors to sell the euro.
While a weaker currency helps bolster Swiss exports by making them more competitive abroad, it can also ease deflation threats by boosting costs of imported goods credit reports free. Swiss consumer prices showed annual gains over the past three months after falling for most of 2009.
The Swiss economy is gathering strength after expanding 0.7 percent in the fourth quarter. Manufacturing growth accelerated in February and leading economic indicators climbed for a 10th month. Nestle SA, the world’s largest food company, on Feb. 19 said sales growth will accelerate this year.
New Outlook
At its last monetary assessment in December, the SNB forecast that the economy will probably expand between 0.5 percent and 1 percent this year. Inflation may average 0.5 percent this year and 0.9 percent in 2011, it said.
While the SNB will raise both the growth and inflation projections, it will “keep the monetary stance unchanged for now,” said Reto Huenerwadel, an economist at UBS AG in Zurich. “This specifically includes the possibility of continued foreign currency interventions.”
The Swiss central bank also said in December that it will stop buying corporate bonds introduced to fight a recession. Jordan said last month that the economy weathered the recession much better than anticipated.
Other central banks are also withdrawing their stimulus measures. The European Central Bank said last week it will continue to tighten the terms of some of its loans to banks and the U.S. Federal Reserve last month raised the discount rate, the rate it charges banks for direct loans.
Switzerland’s recovery “has been more lively than we had expected,” said Dirk Schumacher, an economist at Goldman Sachs Group Inc. in Frankfurt. “While the SNB will likely acknowledge the improved economic outlook, it is still too early for an end to the intervention policy or for an interest-rate hike.”
Filed under: money by Wolf