SNB’s Monetary Policy Assessment March 2010

The SNB states in its most recent monetary policy assessment:

The signs of an economic recovery are becoming more tangible. The improvement is beginning to assist the Swiss export sector, while the domestic sector is performing well. For 2010, the SNB is now expecting real GDP growth of about 1.5%. However, the revival remains fragile and is associated with uncertainties.

Since December, the SNB’s conditional inflation forecast has remained almost unchanged at an average of 0.7% for 2010 and 0.9% for 2011. This forecast shows that short-term price stability is not threatened.

This sounds like good news doesn’t it. On we go:

Economic recovery is also underway in Switzerland. In the fourth quarter of 2009, real GDP was up by 0.7% compared to the previous quarter. This growth was driven by both domestic demand and exports. Particularly strong advances were recorded by retail and wholesale trade, the financial industry and construction. Signs of recovery were increasingly evident in the manufacturing sector – which had been hardest hit by the recession – and were recorded in a considerable number of these industries.

So far it seems that we have come out of the crisis and are on our way to recovery. But are we? The SNB is being cautious (emphasis mine):

Low interest rates are leading to an acceleration in mortgage lending. In January, the growth rate attained 5.3%.

The SNB is warning banks and borrowers to be extremely cautious, in view of the growth in mortgage loans and the continuing increase in residential real estate prices. It is reminding them that in assessing the viability of carrying the debt burden the fact that interest rates are exceptionally low by historical standards must be taken into account. Great caution is needed when setting the loan-to-value ratio.

The SNB is currently conducting an in-depth survey of banks, the purpose of which is to provide more information on banks’ practices when granting mortgages for residential real estate. On the basis of the insights obtained, the SNB will work closely with the bank supervisory authority to assess whether there is any need for action.

Hhmph. Don’t tell me they are starting again with ‘giving mortgages to people that can’t afford them’?

Finally, the SNB’s inflation forecast as of March 2010:

SNBs Inflation forecast of March 2010

SNBs Inflation forecast of March 2010

Since the real GDP is inflation adjusted, I find it interesting how the numbers coincide:

2009: inflation 0.7%, rGDP growth 0.7%;

2010: inflation 1.5%, rGDP growth 1.5%;

Full text of monetary policy assessment: