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SNB Keeps Ultra-Loose Stance With No Sign of Inflation Surge

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The Swiss National Bank stuck with ultra-low interest rates and indicated no intention to change tack any time soon amid contained inflation and a “highly valued” currency.

Officials led by President Thomas Jordan also reiterated their pledge to use foreign-exchange interventions as needed. They kept both the deposit rate and the policy rate at -0.75%, a decision widely expected among economists.

Switzerland finds itself in something of a sweet spot because the economy is recovering without the flare up in consumer prices seen in other countries. While inflation has risen from its 2020 low, it’s still forecast to remain below 1% through 2023.

“You see from our inflation that the franc is highly valued, because otherwise we’d have much higher inflation,” Jordan said on a conference call with journalists. “The development of inflation, of the price level, is a confirmation that we’re currently assessing things correctly and our monetary policy is still justified.”

The franc, which strengthened in the early days of the pandemic, has depreciated against the euro amid the global economic recovery. It weakened a touch after the decision and was trading at 1.08292 per euro at 11:06 a.m. in Zurich.

Other central banks are in a different position when it comes to inflation. Policy makers in Norway may raise interest rates later on Thursday, while Federal Reserve Chair Jerome Powell said Wednesday the U.S. central bank could begin scaling back asset purchases in November.

Despite a buoyant Swiss recovery, the SNB is reluctant to raise what’s currently the world’s lowest benchmark interest rate because that could boost the haven franc and drive down inflation. Over the past decade, the SNB has spent hundreds of billions of francs on interventions.

Policy makers said Thursday that the lingering risks from the pandemic mean the outlook is uncertain. They see the economy growing about 3% this year, compared with roughly 3.5% expected in June.

A byproduct of the SNB’s loose policy has been a worsening of property market imbalances. Lending got a boost when during the early days of the pandemic when Swiss officials deactivated a countercyclical capital buffer for banks’ mortgage assets to prevent a credit crunch.

The SNB said Thursday vulnerabilities had increased further but stopped short of calling for a reactivating of the buffer. According to some measures, housing is overvalued by as much as 30%.

“The SNB hasn’t changed its stance and communication -- which isn’t surprising,” said UBS Group AG Economist Alessandro Bee. “If there was a surprise, it’s that they didn’t change their wording on the franc and on the real estate market.”

(Updates with comment from Jordan in fourth paragraph)

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