The Swiss National Bank raised its policy rate by 50 bps to 1.5% in its March meeting, following a similar move in December and bringing borrowing costs the highest since November 2008. The central bank also said that additional hikes in the policy rate could not be ruled out to ensure price stability over the medium term. The Bank said FINMA, and the SNB had put a halt to the banking crisis and reiterated it was providing large amounts of liquidity assistance in Swiss francs and foreign currencies. In the aftermath after SNB “remains willing to be active in the foreign exchange market as necessary.
The central bank now sees average annual inflation at 2.6% for 2023 (compared to previous projections of 2.4%), and 2.0% for 2024 (from 1.8).”
Monetary policy assessment of 23 March 2023
Swiss National Bank Tightens Monetary Policy
Highlights
- Raises rates 50 bps to 1.50%
- Prior 1.00%
- Rate hike is to counter increased inflationary pressure and further spread of inflation
- It cannot be ruled out that additional rate hikes will be necessary
- To provide appropriate monetary conditions, SNB also willing to be active in FX market as necessary
- SNB sees 2023 Swiss growth at around 1% vs the December forecast for growth around 0.5%.
- The central bank noted that measures announced by the federal government, FINMA, and the SNB had put a halt to the crisis and reiterated it was providing large amounts of liquidity assistance in Swiss francs and foreign currencies, backed by collateral and subject to interest.
Inflation Projections
- Sees 2022 inflation at 2.9% (previously 3%)
- Sees 2023 inflation at 2.6% (previously 2.4%)
- Sees 2024 inflation at 2.0% (previously 1.8%)
Says Stronger Second-Round Effects And The Fact That Inflationary Pressure From Abroad Has Increased Again Mean That, Despite The Raising Of The SNB Policy Rate, The New Forecast Is Higher Through To Mid-2025 Than In December
Market Reaction
- Franc strengthened to 0.91 per USD, approaching robust levels of the last week,
- The yield on the Swiss 10-year government bond pulled back below 1.2%, moving closer to a four-month low of 0.97% touched on March 17th
Remarks by SNB chief, Thomas Jordan on Contribution to financial stability
Ensuring price stability is and will remain the core objective of the SNB. Our monetary policy
assessment has taken place in an exceptional situation. Last week, there was a loss of
confidence in Credit Suisse. In order to avert damage to Switzerland, on Sunday the
authorities decided on extensive measures to safeguard financial stability. The SNB
contributed to this solution within the framework of its mandate. I would like to describe our
contribution in more detail and explain why it was necessary.
The global crisis of confidence rapidly intensified last week due to the turmoil in the US
banking industry. From Wednesday onwards, this had a direct impact on Credit Suisse’s
liquidity situation as a result of strong outflows of customer deposits and cuts in counterparty
limits. The SNB then lent Credit Suisse large amounts of liquidity in Swiss francs and foreign
currencies. The extensive liquidity assistance provided the time needed to find a solution to
safeguard financial stability. This solution had to be worked out under considerable time
pressure in order to be ready before the Asian markets opened this week. A Credit Suisse
bankruptcy would have had serious consequences for national and international financial
stability and for the Swiss economy. Taking this risk would have been irresponsible.
On Sunday, the takeover of Credit Suisse by UBS was announced. At that time, we said that
the SNB would provide additional substantial liquidity in the form of loans to support the
successful implementation of the takeover.
The SNB provides such liquidity assistance within the scope of its statutory task to contribute
to the stability of the financial system. In exceptional situations, as the lender of last resort we
provide emergency liquidity against sufficient collateral. The solvency of the bank must be
confirmed by FINMA in each case. Let me make one thing very clear: our liquidity measures
are loans that are secured and subject to interest, and not gifts. The measures taken by the
federal government, FINMA and the SNB have put a halt to the crisis surrounding Credit
Suisse. In a few minutes, Martin Schlegel will explain the structure of the liquidity assistance
loans in detail. Andréa Maechler will then talk about our cooperation with other central banks
over the last few days. She will also briefly explain the impact of the liquidity measures on
the implementation of our monetary policy.
Monetary policy assessment of 23 March 2023
Press Statement
Swiss National Bank tightens monetary policy further and raises
SNB policy rate to 1.5%
The SNB is tightening its monetary policy further and is raising the SNB policy rate by
0.5 percentage points to 1.5%. In doing so, it is countering the renewed increase in
inflationary pressure. It cannot be ruled out that additional rises in the SNB policy rate will be
necessary to ensure price stability over the medium term. To provide appropriate monetary
conditions, the SNB also remains willing to be active in the foreign exchange market as
necessary. For some quarters now, the focus has been on selling foreign currency.
The SNB policy rate change applies from tomorrow, 24 March 2023. Banks’ sight deposits
held at the SNB will be remunerated at the SNB policy rate of 1.5% up to a certain threshold.
Sight deposits above this threshold will be remunerated at an interest rate of 1.0%, and thus
still at a discount of 0.5 percentage points relative to the SNB policy rate.
The past week has been marked by the events surrounding Credit Suisse. The measures
announced at the weekend by the federal government, FINMA and the SNB have put a halt to
the crisis. The SNB is providing large amounts of liquidity assistance in Swiss francs and
foreign currencies. These loans are secured and subject to interest.
Inflation has risen again since the beginning of the year, and stood at 3.4% in February. It is
therefore still clearly above the range the SNB equates with price stability. The latest rise in
inflation is principally due to higher prices for electricity, tourism services and food.
However, price increases are now broad-based.
The SNB’s new conditional inflation forecast is based on the assumption that the SNB policy
rate is 1.5% over the entire forecast horizon (cf. chart 1). Stronger second-round effects and
the fact that inflationary pressure from abroad has increased again mean that, despite the
raising of the SNB policy rate, the new forecast is higher through to mid-2025 than in
December.
The new forecast puts average annual inflation at 2.6% for 2023, and 2.0% for 2024 and 2025 (cf. table 1). At the end of the forecast horizon, inflation stands at 2.1%. Without today’s policy rate increase, the inflation forecast would be even higher over the medium term.
The global economy hardly grew in the fourth quarter, while in many countries inflation
remained clearly above central banks’ targets. Against this background, numerous central
banks have tightened their monetary policy further
The global economy hardly grew in the fourth quarter, while in many countries inflation
remained clearly above central banks’ targets. Against this background, numerous central
banks have tightened their monetary policy further.
The growth outlook for the global economy in the coming quarters remains subdued. At the
same time, inflation is likely to remain elevated worldwide for the time being. Over the
medium term, however, it should return to more moderate levels, not least thanks to monetary
policy and due to the economic slowdown. This scenario for the global economy is subject to
significant risks, in particular due to the recent turmoil in the global financial sector.
Swiss GDP stagnated in the fourth quarter. The services sector lost momentum, and value
added in manufacturing declined slightly again. For 2022 as a whole, GDP grew by 2.1%.
The labour market remained robust, and overall production capacity has been well utilised.
Despite the slight upturn in economic activity in recent months, growth is likely to remain
modest for the rest of the year. The subdued demand from abroad and the loss of purchasing
power due to inflation are having a dampening effect. Overall, GDP is likely to increase by
around 1% this year. Unemployment should remain at a low level, and the utilisation of
production capacity is likely to decline somewhat.
The forecast for Switzerland, as for the global economy, is subject to high uncertainty. In the
short term, the main risks are an economic downturn abroad and adverse effects of the turmoil
in the global financial sector.
Mortgage growth has remained largely stable in recent months, whereas there are signs of a
slowdown in residential real estate prices. The vulnerabilities on the mortgage and real estate
markets persist.
More detailed information on the monetary policy decision can be found in the introductory
remarks of the Governing Board.
Source: SNB
From The TradersCommunity News Desk