By John Revill
ZURICH (Reuters) – Switzerland’s central bank tempered its view of the Swiss franc’s overvaluation on Thursday although analysts said the language shift should not be seen as heralding a departure from its ultra-loose monetary policy.
The Swiss National Bank retained its negative interest rates and said it remained ready to intervene in the currency markets to rein in the franc, whose soaring valuation it has long fought to restrain.
But in its quarterly policy assessment, the SNB ditched its nearly three-year mantra that the franc was “significantly overvalued”, as foreseen by an Reuters poll before the interest rates decision.
Instead the central bank acknowledged the franc’s weakening against the euro (EURCHF=) in recent weeks, which it said “is helping to reduce, to some extent, the significant overvaluation of the currency”.
“The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile,” the SNB said in a statement.
The franc weakened on the news, with the euro gaining 0.4 percent to trade at 1.1504 (EURCHF=), still below the 1.20 floor the SNB defended until January 2015.
SNB Chairman Thomas Jordan said the central bank had not considered changing its policy, citing low inflation in Switzerland and a small interest rate differential to other countries.
“We see absolutely no reason for us to change our monetary policy at present,” Jordan told Swiss broadcaster SRF.
Analysts said the language tweak should not be seen as a shift by the SNB, which has built up foreign currency reserves 10 percent bigger than Switzerland’s total economic output during its campaign to weaken the franc.
Instead the change was recognition of the euro’s nearly 5 percent rise against the franc since early July as Europe’s economic recovery gathers momentum and political risks ease.
That has helped Swiss exporters, whose biggest foreign market is the neighboring euro zone.
“The change in the SNB’s language was even more subtle than I thought it would be,” said Karsten Junius, an analyst at J.Safra Sarasin. “But they will trigger no change in actual SNB policy.”
Analysts from Credit Suisse (SIX:CSGN), UBS and Zuercher Kantonalbank also expected no imminent change to SNB policy.
On Thursday, it kept its target range for the three-month London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent and negative rates on sight deposits at -0.75 percent, as expected in a Reuters poll of analysts.
The SNB trimmed its GDP forecasts, although the weaker currency let it raise its inflation outlook.
The central bank is likely to remain cautious pending a consolidation of the franc’s weakness.
The European Central Bank will also have to start reducing its own expansive policy before the SNB changes tack, said UBS analyst Alessandro Bee.
“When the ECB gets toward the end of reducing its asset purchase program that would probably lead to higher interest rates in the euro zone and allow the SNB to lift its own interest rates,” Bee said.
The SNB would also want to see evidence that economic damage caused by the franc’s surge over the last three years has been repaired. “The data here has so far been mixed,” said Bee.