September 20, 2018 / 7:56 AM / 2 years ago

UPDATE 3-SNB sees no clear exit from crisis mode as cuts inflation view

* SNB cuts inflation outlook for 2019 and 2020

* Swiss Franc has soared on trade tension, Italy concerns

* No chance SNB will hike rates before ECB -economist (Recasts with SNB chairman’s comments)

By John Revill

ZURICH, Sept 20 (Reuters) - Switzerland’s monetary policy will stay in crisis mode for the foreseeable future, its central bank indicated on Thursday, as it cut inflation forecasts after investors spooked by trade and political tensions abroad piled into the franc.

Economists had expected the Swiss National Bank (SNB) to start raising its benchmark rate from -0.75 percent when the European Central Bank starts normalising its policy, which is forecast to happen next September.

But with the Swiss franc having gained nearly 7 percent against the euro since April, the SNB forecast inflation would remain limp in 2019 and 2020.

“For sure we are far away from normality,” SNB Chairman Thomas Jordan told Swiss broadcaster SRF after the bank’s monetary policy announcement. “We have negative interest rates and remain willing to intervene in the foreign currency markets.

“The franc has appreciated, and has led to a tightening of monetary conditions. That is also the main reason why our ...policy has to remain expansive.”

As unanimously forecast by 36 economists polled by Reuters, the SNB kept its base rate - the lowest in the world - on hold..

The bank has not changed policy for three and-a-half years as it has fought to keep a lid on the franc, whose strength hurts Switzerland’s export-reliant economy.

The currency has sharply extended gains against the euro in the past five months due to global trade tensions and concerns about loose fiscal policy in Italy.

The franc eased against the euro after Thursday’s decision, with futures markets not pricing in any Swiss rate hike until a year from now.


Analysts look to the SNB’s inflation forecasts for indications as to when it might change policy.

On Thursday the bank cut those predictions to 0.8 percent from 0.9 percent for 2019 and to 1.2 percent from 1.6 percent for 2020. Its price stability goal is inflation below 2 percent.

“We still have an inflation rate which is very low, recently it was even negative,” Jordan said. “That means we still have to be careful because not much is needed for a setback to happen again which could negatively affect inflation and the entire economy.”

Maxime Botteron, an economist at Credit Suisse, said the lowered inflation forecasts suggested the SNB “is barely considering raising its policy rate over the next three years.”

The SNB is being cautious because it believes risks will grow in the coming months, which could drive more safe-haven flows into the franc, said Charlotte de Montpellier, an economist at ING Bank.

The downward revision meant “there is absolutely no chance the SNB will start raising interest rates before the ECB starts raising its own rate,” de Montpellier said.

“It is possible that the first (Swiss) rate increase will be postponed towards 2020.”

Text of the SNB statement: (Reporting by John Revill; editing by Michael Shields and John Stonestreet)

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