Trading the News: Swiss National Bank Interest Rate Decision

June 2009 SNB Interest Rate Decision

The central bank in Switzerland held borrowing costs at 0.25% in June and pledged to take “firm action” to stem the appreciation in the exchange rate, and policy makers may continue to intervene in the currency market as the outlook for growth and inflation remains bleak. SNB Governor Roth said that the economic “situation is gradually normalizing, although it remains very vulnerable,” and held a dovish outlook for price growth as they continued to see a risk for deflation. At the same time, board member Thomas Jordan said that the central bank will take steps to “prevent an appreciation of the Swiss franc against the euro,” but went onto say that the SNB has not set a “fixed threshold” for the exchange rate in an effort to ward off speculative trading as the global financial system remains fragile.

March 2009 SNB Interest Rate Decision

The Swiss National Bank lowered the benchmark interest rate by 25bp in March to 0.25% from 0.50%, and aims to purchase corporate bonds along with foreign currencies in an effort to stem the appreciation in the exchange rate as the region faces its worst economic downturn in over a quarter century. The expansion in monetary policy marks the first currency intervention since 1992, and the central bank may take additional steps to soften the landing of the economy as policy makers anticipate the growth rate to contract 2.5-3.0% this year and see a risk for deflation. The central bank forecasts price growth to fall at an annual rate of 0.5% this year and project inflation to be “very close to zero” over the next two-years, with President Jean-Pierre Roth stating that “the effects of our interest rate cuts was neutralized by the permanent appreciation of the Swiss franc.”