SNB Leaves Benchmark Rate Unchanged, As it Sees Inflation Transitory

The Swiss National Bank left their benchmark interest rate unchanged at 2.75% as expected. Shortly before the release expectations had grown that the MPC would actually hike rates as inflation concerns mounted. Indeed, the statements following the release showed that the central bank increased their inflation expectations for the year from 2.0% to 2.7% as rising energy and food costs continue to filter throughout the economy. They see inflation risks remaining as long as energy prices remain high. However, the committee would suggest that inflation was transitory and that it would ease to 1.7% in 2009 and 1.3% in 2010. The SNB also maintained their growth expectations for the country at 1.5% to 2.0% down from 3.1% in 2007. The recent trade balance report validated the call for slower growth, showing a decline in exports to 17.4 billion from 18.7 billion in April. Nevertheless, the economic activity in the country remains relatively robust. The expectations of moderate growth and the potential for inflation to ease may lead to the central bank to leave their benchmark rate unchanged for the remainder of the year. – [I]John Rivera, Currency Analyst[/I]