SWISS NATIONAL BANK: The franc is 'still significantly overvalued'

REUTERS/Denis Balibouse

(Reuters) - Switzerland's central bank on Thursday kept its expansive monetary policy intact, holding its negative interest rates at record low levels despite mounting criticism of the policy that has hurt banks and pensions.

The Swiss National Bank kept its target range for three-month Libor at -1.25 to - 0.25 percent, as expected by economists in a Reuters poll. It also kept its interest rate on cash deposits at -0.75 percent, as expected.

"The Swiss franc is still significantly overvalued," the SNB said in a statement.

"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 upward pressure on the currency."

The franc held steady against the euro on the news.

The SNB said it expected the export-led Swiss economy to grow by 1.5 percent in 2016, at the upper end of its June forecast of 1 percent to 1.5 percent.

It kept its inflation forecast at -0.4 percent this year, but lowered its outlook for 2017 to 0.2 percent and to 0.6 percent in 2018.

The SNB said the slightly less favourable global economic outlook dampened inflation in Switzerland, and the global economic outlook was subdued.

Britain's June vote to leave the European Union "has caused considerable uncertainty and makes an assessment of the global economic outlook more difficult," it said, adding it had revised downwards its growth expectations for the UK and the euro area.

"As regards the global economy, the risks remain to the downside, owing to numerous structural problems."

Although the Swiss economy continued to grow, capacity utilisation remained unsatisfactory, the SNB said, and not all companies had benefited equally from the recovery.

"In the second half of the year, growth is likely to be more modest than in the first half, partly owing to a temporary weakening of growth in Europe," the SNB said.

Such an environment left the SNB little room to change its policy, economists said.

"While the SNB acknowledged that the recovery of the Swiss economy was somewhat stronger than expected, the SNB has become slightly less optimistic on the outlook of the European economy following the Brexit referendum," said Ursina Kubli, a forex strategist at J. Safra Sarasin. "Therefore, an expansive monetary policy is still fully warranted in Switzerland."

(Editing by Michael Shields)

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