Swiss central bank cuts growth outlook

The Swiss National Bank on Thursday kept its low key rate unchanged and said the current global economic climate was forcing it to cut its 2012 economic growth outlook.

Swiss central bank cuts growth outlook
Photo: Swiss National Bank

The SNB's target range for the franc's three-month London interbank offered rate (Libor) would remain unchanged at 0-0.25 percent, a bank spokesman said in a conference call with reporters.

The Swiss central bank also said that "as a result of the deterioration in the global economic outlook" and slight negative growth in the second quarter, it now expected the country's gross domestic product (GDP) for 2012 to tick in at 1.0 percent, compared to its previous estimate of 1.5 percent.

SNB also reiterated its determination to prevent the Swiss franc from gaining too much in value against the European common currency, and that it would work to maintain an exchange rate floor of 1.20 francs for each euro.

Investors unsettled by the eurozone debt crisis and uncertain US economic prospects have fled to the perceived Swiss safe haven, driving up the value of the franc to the detriment of the country's exporters.

"The SNB will not permit an appreciation of the Swiss franc, given the serious impact this would have on both prices and economic performance in Switzerland," the bank said in a statement.

The SNB will defend this floor "with all the determination necessary" by buying unlimited amounts of currency on the foreign exchange market, the bank spokesman said.

The central bank also reversed its inflation outlook for the current year, saying consumer prices were likely to rise 0.6 percent, and not fall 0.5 percent as previously expected.

SNB meanwhile expects inflation to stand at 0.2 percent next year, instead of the previously anticipated 0.3 percent, and 0.4 percent in 2014, compared to a previous forecast of 0.6 percent.

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?