Consumer prices in Switzerland are expected to fall at a slower 0.4 percent this year (-0.8 percent in March projections) and rise 0.3 percent in 2017 (+0.1 percent in March projections).
Excerpts from the SNB press release:
Interest on sight deposits at the SNB is to remain at –0.75% and the target range for the three-month Libor is unchanged at between –1.25% and –0.25%. At the same time, the SNB will remain active in the foreign exchange market, as necessary. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency. The Swiss franc is still significantly overvalued. The SNB’s expansionary monetary policy is aimed at stabilising price developments and supporting economic activity.
The new conditional inflation forecast suggests inflation will rise faster over the coming quarters than the SNB predicted in March, principally due to the significant increase in oil prices in the intervening period. The effect of this oil price rise on annual inflation vanishes after the first quarter of 2017. The new conditional forecast subsequently moves closer to that of the last quarter, and is in line with it from 2018. At –0.4%, the inflation forecast for 2016 is 0.4 percentage points higher than in March. For 2017, the SNB expects an inflation rate of 0.3%, compared to 0.1% forecast in the last quarter, while still anticipating a rate of 0.9% for 2018. The conditional inflation forecast is based on the assumption that the three-month Libor remains at –0.75% over the entire forecast horizon.
The moderate recovery in the global economy continues. By contrast, international trade and global manufacturing remain subdued. All in all, positive economic signals in recent months have helped ease the situation on the international financial markets, which were dominated by turbulence at the start of the year. Against a backdrop of rising confidence, commodity prices have also recovered from their lows. The SNB expects the moderate growth in the global economy to sustain over the coming quarters.
Nevertheless, significant risks remain for the global economy. Furthermore, the imminent UK referendum on whether to stay in the European Union may cause uncertainty and turbulence to increase. In Switzerland, real GDP grew at an annualised rate of 0.4% in the first quarter. Available indicators suggest that the recovery will be ongoing. The gradual improvement in the international environment will also benefit Switzerland. The SNB expects the unemployment rate to stabilise in the second half of the year. For 2016 as a whole, it still anticipates real GDP growth of between 1% and 1.5%.