ZURICH (Reuters) - The Swiss National Bank highlighted continued global political uncertainty on Thursday as it stuck to its ultra-loose monetary policy designed to stem demand for the safe-haven Swiss franc.
The central bank is braced for the outcome of European elections this year which could trigger an upsurge in demand for the franc should nationalists perform well.
In its quarterly policy assessment the SNB said the global economy remained subject to considerable risks.
“Chief among these are political uncertainty with respect to the future course of economic policy in the U.S., upcoming elections in Europe, and the complex exit negotiations between the UK and the EU,” the central bank said in a statement.
It kept its target range for three-month Swiss franc Libor at -1.25 percent to -0.25 percent and the rate it charges on sight deposits at -0.75 percent, as expected in a Reuters poll of economists.
The SNB reiterated its vow to intervene on currency markets when needed to rein in the franc, which it said remained “significantly overvalued”.
The SNB kept its forecast for the export-led Swiss economy to grow around 1.5 percent in 2017, but lifted its inflation forecast to 0.3 percent from 0.1 percent.
The SNB has been stepping up attempts to weaken the franc as the currency has attracted safe-haven flows from investors concerned by the potential break-up of the euro zone.
The French election starting next month has been driving demand for the Swiss currency, with anti-EU candidate Marine Le Pen leading polls ahead of the first round, although she is not expected to win the French presidency.
The success of Dutch Prime Minister Mark Rutte over anti-EU candidate Geert Wilders in Wednesday’s Dutch election offered some relief to governments across Europe facing a wave of nationalism.
But experts said it was premature to say Wilders’s defeat was a sign that European populism is waning, and Le Pen remained a risk factor.
The franc was trading slightly higher at 1.0711 versus the euro.
“The impact of the Dutch election on EUR/CHF was very modest and short-lived,” said Maxime Botteron, an economist at Credit Suisse. “In that sense, it has not really helped reducing the pressure on the franc.”
Wednesday’s rate hike by the U.S. Federal Reserve was also unlikely to weaken the franc, said Ursina Kubli, a strategist at J. Safra Sarasin.
“The strong demand for the Swiss franc is likely to continue in the next weeks as the French elections may support more safe-haven inflows,” she said.
Editing by Michael Shields