The SNB intensified the stance that it would use all possible means to combat deflation, as the central bank revised lower the growth and inflation outlook in the September meeting. Policymakers announced to defend the 1.2 floor of EURCHF, noting that ‘given a worsening of the environment, the key remains the minimum exchange rate’. In the meantime, the central bank also left the target range for the three-month Libor unchanged at 0.0–0.25%.However, EURCHF weakened after the statement as the market had anticipated that the central bank would accelerate easing measures and there had been rumors that the SNB would adopt negative rates.
The central bank warned that the ‘risk of deflation’ has ‘increased again’. Against this backdrop, the SNB would ‘continue to enforce the minimum exchange rate with utmost determination’ and is ‘prepared to purchase foreign currency in unlimited quantities. If necessary, it will take further measures immediately’. This was compared to the June meeting that policymakers pledged ‘to take further measures as required’.
Policymakers lowered its GDP growth forecast to +1.5% this year from +2% projected previously. On inflation, the forecast for this year stayed unchanged at +0.15. However, readings in 2015 and 2016 were revised lower to +0.2% and +0.5%, from +0.3% and +0.9% respectively.
While the SNB stood on the sideline, the market believes it would act as the market situation worsens. It is expected that the central bank would intervene to charge on banks’ reserves and cut the deposit rate to negative. The schedule would be brought nearer as the ECB moves to QE.