SNB Minutes: Swiss economic outlook becomes uncertain due to Middle East war
Here are remarks from the Swiss National Bank’s (SNB) monetary policy announced on March 19:
Medium-term inflationary pressure is virtually unchanged compared with the last monetary policy assessment.
Despite the escalation in the middle east, the scenario for global economic developments has not changed fundamentally.
With outbreak of war in Middle East, Swiss economic outlook for coming quarters has become more uncertain.
The economic outlook for Switzerland improved slightly in the first months of the year.
Growth could be rather subdued in the short term, before recovering again in the medium term.
While the economic outlook for Switzerland in the coming months is uncertain and growth could be rather subdued in the shorter term, in the medium term the growth outlook is expected to improve.
Swiss GDP growth of around 1% is expected for 2026 and around 1.5% for 2027.
Although the output gap is currently negative due to the decline in GDP in the third quarter, it is expected to close in the coming quarters.
Unemployment has stabilised and should decline somewhat in the coming quarters.
Swiss inflation is likely to increase in the short term due to higher energy prices, but remain within range consistent with price stability.
The governing board noted that, owing to the appreciation of the Swiss Franc, monetary conditions are tighter than at the time of the monetary policy assessment in December.
In medium term, Swiss inflation is likely to decline again.
However, in light of the outlooks presented with regard to inflation and the economy, they remain appropriate.
It also concluded that monetary policy can currently still be considered expansionary as evident, among other things, in the growth in credit and in the broad monetary aggregates.
Main risk to the economic and inflation outlook for Switzerland stems from developments in the global economy.
War in the middle east could curb economic activity more strongly and increase upward pressure on the Swiss Franc.
In view of geopolitical situation and the associated flight to safe havens, however, the SNB's willingness to intervene in the foreign exchange market should remain high in order to counter a rapid and excessive appreciation of the Franc.
SNB considered how the effects of war in the Middle East were factored into the current forecasts and analyses.
Only a slight downturn in sentiment is evident so far.
SNB addressed question why Switzerland is less affected by high energy prices than other countries.
Reason for this is that energy is of lower significance for consumption.
Switzerland's manufacturing industry is also less dependent on energy prices.
Governing board discussed the conditional inflation forecast, which assumes that the SNB policy rate remains unchanged at 0%
Forecast is within the range of price stability over the entire forecast horizon.
In the short term, it is higher than the December forecast due to the rise in energy prices.
In medium term, appreciation of the Swiss Franc reduces inflationary pressure, countering possible second-round effects of the rise in energy prices.
Inflation forecast over the medium term is therefore very close to that of the previous quarter.
Market reaction
No immediate response by the Swiss Franc (CHF) after the SNB minutes release. However, USD/CHF is rising in the European trade and has recovered its early losses, turning flat around 0.7820 as the US Dollar (USD) bounces back.
SNB FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
