Meanwhile, the Swiss National Bank slashed deposit rate, sending it to the negative territory, to limit inflows from investors seeking a safe haven place to park their cash. Policy makers in the Alpine nation imposed a charge of 0.25% on sight deposits, the cash-like holdings of commercial banks at the Swiss central bank. The SNB thus expanded the target range for the three-month Libor to -0.75%-0.25% and extended it to its usual width of 1 percentage point. The SNB reiterated its commitment to the minimum exchange rate of 1.20 francs per Euro, underlying that it would defend the cap the "utmost determination" and implement further measures if needed. Given the fact the results of the second round of TLTRO failed to bring relief to the ECB policy makers, further loosening is a matter of time, which may challenge the SNB's task to defend the lid.
In Britain inflation slid to the lowest level in 12 years in November as falling fuel prices pushed down transport costs, while food prices declined. The UK consumer prices dropped to 1%, down from 1.3% and compared with economists' expectations for 1.2%. If inflation drops below 1% the Bank of England Governor Mark Carney would have to write a letter of explanation to the Chancellor George Osborne. The Bank of England said last month it projects inflation to slide below 1% in the next few months. As a result, the vote of the MPC remained unchanged in December, with the majority of policy makers believing that weak inflation outlook warranted maintaining interest rates intact at all-time low of 0.5%.
Across the Atlantic, concluding the FOMC's two-day meeting, Fed Chairwoman Janet Yellen said that the US central bank plans to hike interest rates next year, but it would take a patient approach in deciding on a timing of the first rate hike, which would not take place any earlier than late April. Yellen's comments along with the FOMC statement indicated that the Fed was not inclined to start normalizing its monetary stance more quickly despite recent upbeat economic data, including stronger employment growth and falling oil prices. Still-elevated unemployment rate and below-target inflation provides the central bank with flexibility to take gradual approach to lifting rates. The FOMC statement also showed that the overwhelming majority of policy makers expect the Fed to raise the federal funds rate by 0.75-1.75 percentage points in 2015.
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