Volkswacht Bodensee - Swiss central bank holds interest rates, with eye on currency risks

Since the Middle East conflict began at the end of February, "the rise in energy prices has led to higher inflation worldwide", said Swiss National Bank (SNB) chairman Martin Schlegel.

However, "the increase in inflation has been smaller in Switzerland than in many other countries", he told a press conference in the capital Bern.

"At 0.6 percent, inflation is relatively low by international standards and lies within the range consistent with price stability," he said, a rate the bank sees as between zero and two percent.

The central bank predicts that inflation will rise slightly in the coming quarters before declining again.

The SNB left its growth forecasts unchanged at around one percent for this year and around 1.5 percent in 2027.

In a statement, it said the Swiss economy had "proved to be resilient" given the conflict in the Middle East.

Like gold, German bonds or the Japanese yen, the Swiss franc is a major safe-haven asset where investors seek refuge during geopolitical tensions or economic uncertainty.

Since the war erupted, "upward pressure on the Swiss franc initially increased", Schlegel said, as investors sought safety, but has since retreated slightly.

He said interest rates in major currency areas had risen, increasing the difference between Swiss rates and thereby easing upward pressure on the franc.

"However, the geopolitical situation remains uncertain. The risk of strong upward pressure thus persists," the bank said.

Schlegel also said that if necessary, the SNB was increasingly willing to intervene in the foreign exchange market.

Harry Chambers, an economist at the London-based research group Capital Economics, said he thought the SNB would keep interest rates unchanged "over the next couple of years".

The central bank's attention "is firmly on the exchange rate", he said.

M.Schneider--VB