SNB sees downside risks to growth


ZURICH • The Swiss National Bank (SNB) cut its inflation forecast and showed no inclination of moving off its crisis era settings, citing the franc’s strength and mounting global risks.

Investor anxiety about Italian politics, trade tensions and Brexit has put upward pressure on the franc in recent months, dragging it further away from its April low against the euro. Highlighting those risks yesterday, the SNB repeated its muchused phrase that the situation remains “fragile” and maintained its currency intervention threat.

The central bank slashed its 2019 inflation forecast to 0.5% from 0.8%. While price growth will pick up the following year, the revival — to 1% — will be weaker than previously projected. Economic expansion will slow to 1.5% next year from about 2.5% this year, it said.

“Risks are to the downside, as is the case with the global economy. In particular, a sharp slowdown internationally would quickly spread to Switzerland.”

Switzerland’s decision comes just hours before the European Central Bank (ECB) is due to announce an end to its enormous bond-buying programme. The launch of that stimulus in 2015 led the SNB to unleash a market storm by slashing rates to their current lows and scrapping its 1.20-per-euro minimum exchange rate.

The franc weakened to that level earlier this year, briefly raising the possibility of Swiss policymakers getting ahead of their euro-area counterparts with a rate rise.

But it’s since appreciated through 1.13 versus the euro and that, along with mounting risks, has dashed hopes of a preemptive SNB hike. In addition, the Swiss economy unexpectedly shrank in the third quarter.

“Given the economic and political uncertainties, there is also the risk of major and sudden movements in the exchange rate, which would significantly alter monetary conditions,” SNB president Thomas Jordan said. “We therefore continue to regard the situation on the foreign- exchange market as fragile.”