-Cautious SNB cuts inflation outlook, keeps rates on hold
(Removes superfluous word in last paragraph.)
* SNB cuts inflation outlook for 2019 and 2020
* Economists say rate hikes on hold for most of next year
* SNB says franc remains highly valued, FX market fragile
By John Revill
ZURICH, Sept 20 (Reuters) - The Swiss National Bank lowered
its inflation forecasts on Thursday, indicating the central bank
is likely to maintain its ultra-loose monetary policy well into
next year or later.
The central bank kept its negative interest rates policy on
hold, citing a "fragile" foreign exchange market and rising
protectionism, as unanimously forecast by 36 economists polled
But the SNB now sees consumer prices rising 1.2 percent in
2020, down from a previous view of 1.6 percent. The SNB defines
its price stability goal as prices rising below 2 percent.
It cut its inflation forecast for 2019 by 10 basis points to
Analysts look to the SNB's inflation forecasts for
indications on when Chairman Thomas Jordan will change the
bank's policy, which has remained frozen since January 2015.
"The central bank has substantially lowered its long-term
inflation forecast, thereby suggesting that it is barely
considering raising its policy rate over the next three years,"
said Maxime Botteron, an economist at Credit Suisse.
Economists had previously expected the SNB to start raising
rates from -0.75 percent when the European Central Bank starts
normalising its own policy, which is forecast to happen next
The SNB is being cautious because it believes risks will
grow in the coming months, which could drive safe-haven flows
into the franc, said Charlotte de Montpellier, an economist at
The SNB has fought long and hard to limit the franc's rise,
which weighs on Switzerland's export-reliant economy.
"This downward revision of the inflation forecast signals
that the SNB will wait a long time to change its monetary
policy," de Montpellier said.
"It means that there is absolutely no chance the SNB will
start raising interest rates before the ECB starts raising its
own rate," she said. "It is possible that the first rate
increase will be postponed towards 2020."
The franc eased against the euro after the
decision. Futures markets were not pricing in any Swiss rate
hike until a year from now.
The SNB revised downwards its inflation forecast to reflect
how the stronger franc has made imports cheaper. In recent weeks
the franc has risen to its highest against the euro since July
2017, driven by concerns about Italy's budget and rising trade
tensions around the world.
The SNB repeated its readiness to intervene in the markets
to block the currency's gains.
The SNB also kept its description of the currency as "highly
valued", adding risks remained to its generally positive
assessment of the Swiss and global economies.
Text of the SNB statement:
(Reporting by John Revill; editing by Brenna Hughes Neghaiwi
and Michael Shields)
First Published: 2018-09-20 09:54:48
Updated 2018-09-20 12:02:04
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