Swiss National Bank (SNB) Monetary policy decisions 2009

At its September assessment, the SNB projected that economic growth outside Switzerland would be higher than had been expected in June, and that the US and European economies would return to positive rates of growth before the end of the year. The SNB therefore made a substantial upward revision to its growth forecasts for the major economies in 2010, in particular for the US (2.4%) and Europe (2.2%).

The economic situation in Switzerland continued to be difficult. The rate of capacity utilisation was falling and unemployment was rising sharply. Nevertheless, the SNB revised its 2009 GDP forecast upwards, to between –1.5% and –2%. This was due to the fact that the global economy had returned to growth more quickly than expected, which also benefited Swiss exports. Moreover, the contraction in GDP in the second quarter had been less pronounced than anticipated.

Having grown strongly as a result of the generous supply of liquidity, base money decreased markedly in the months preceding the assessment. However, the amount of liquidity was still high at the time of the assessment, not just in the banking industry but also in the household and corporate sectors. The faster pace of M1 and M2 growth since the beginning of the year, as well as the more recent acceleration in M3 growth, were attributable to this.

The developments in lending and the monetary aggregates were a reflection of the very expansionary monetary policy. Mortgage lending, which accounts for around 80% of total lending, increased by 4.6% in July. At the time of the assessment, there was still no evidence of a credit crunch for either households or companies.

The export-weighted external value of the Swiss franc was stable just prior to the assessment, as was the exchange rate against the euro. This confirmed the effectiveness of the monetary policy measures implemented since March.

At the time of the assessment, inflation was still negative, and core inflation was trending downwards. Although the GDP forecasts had been revised upwards, inflation was still expected to be close to zero for 2010 and 2011. The risk of deflation thus persisted, despite having lessened since the June assessment.

In these circumstances, the SNB decided to leave its expansionary monetary policy unchanged. It held the Libor target range at 0.0–0.75% and continued to aim for a Libor of 0.25%. It also announced that it would continue to supply the economy with generous amounts of liquidity, and take firm action to prevent any appreciation of the Swiss franc against the euro.

The September inflation forecast was based on a three-month Libor of 0.25%. Both the negative inflation in 2009 and the acceleration of inflation projected for the beginning of 2010 were attributable to a base effect from energy prices. It was expected that, over the rest of 2010, inflation would remain persistently low, but that the output gap would close more rapidly than had previously been anticipated. Accordingly, the inflation forecast for 2011 rose, while that for 2012 exceeded 2%.