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The Swiss central bank governors won't yield to mounting criticism about negative interest rates. On the contrary, with downside risks mounting, the bank won’t be rushed into tightening monetary policy.

Since September, when the Swiss National Bank (SNB) last published a monetary policy review, the franc has depreciated slightly against major foreign currencies. And yet the bank will stick to its policy of cheap money that is aimed at keeping the franc from appreciating, it said at a media conference in Bern on Thursday.

A Clear Enough Mandate

Thomas Jordan, the chairman of the governing board of the bank, parried a flurry of questions about when the bank finally would tighten the purse strings again. He insisted that the bank simply did its job, which was maintaining price stability while taking into account the economic development of the country.

«If we were to narrow the interest rate difference to foreign central banks now, it would have major repercussions on the foreign currency situation,» said Jordan. «The situation is more fragile than it was three or six months ago.»

Price Stability Maintained

The inflationary outlook for the Swiss economy remains benign and the bank doesn’t expect price stability to come under pressure anytime soon. Hence, the governors look much more closely at the valuation of the franc and the economic performance of Switzerland.

Switzerland’s rate of growth likely will slow from about 2.5 percent in 2018 to about 1.5 percent in 2019. An open economy such as Switzerland’s is heavily dependent on the dynamic of the economy abroad, which also is predicted to slow down.

A strong Swiss franc is a problem for the country’s manufacturing industry, because the domestic market is small and the export business crucial for its success. The SNB says the franc is «still highly valued». And at the same time, there are a number of major risks that have a significant potential to damage the Swiss economy.

Brexit Chaos and Italian Exuberance

The chaotic decision-making process of the British government in respect to Brexit is one of the major concerns, while Italy’s proposal for a widening of the budget deficit is another – keeping in mind that the European Union is by far Switzerland’s largest trading partner. Add to that the trend to protectionist policies which also has the potential to slow down economic activities across the globe.