The Swiss National Bank lowered the 3-month target LIBOR rate by 50bp to 0.50% as expected, but lowered their growth and inflation forecasts for 2009 as the credit crunch continues to drag on the real economy. Deteriorating fundamentals lead policymakers to cut their growth forecast for 2009 as they expect the economy to contract 0.5%-1.0% next year, and expect price pressures to fall further as they lowered the inflation forecast to 0.9% from an initial projection of 1.9%. In addition, the central bank explicitly stated that they are willing to take ‘further measures’ to foster growth if needed, and noted that they expect price pressures to remain subdued going forward. The dovish commentary paired with mounting growth concerns suggests that the SNB will continue to ease policy next year as credit conditions remain far from normal, and may step up their efforts as policymakers carry out their dual mandate to ensure price.
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