By John Revill
ZURICH (Reuters) - Switzerland's central bank shrugged off criticism of its negative interest rates, sticking to its recipe of ultra-loose monetary policy and currency intervention amid "considerable" economic uncertainty in Europe.
The Swiss National Bank said on Thursday it expected moderate growth in the global economy but significant risks remained, particularly following Britain's June vote to quit the European Union.
The SNB said it expected the export-led Swiss economy to expand 1.5 percent in 2016, at the upper end of its June forecast of 1 percent to 1.5 percent, but growth "is likely to be more modest than in the first half, partly owing to a temporary weakening of growth in Europe".
The central bank kept its target range for three-month Libor at -1.25 to –0.25 percent, as expected by economists in a Reuters poll. It also kept its interest rate on cash deposits at -0.75 percent, as expected.
Negative rates and currency interventions have been the cornerstone of the SNB's strategy to weaken demand for the Swiss franc since it scrapped its cap against the euro in January 2015.
SNB Chairman Thomas Jordan told Swiss broadcaster SRF: "We never comment on our interventions. The franc remains clearly overvalued and that's why we are maintaining our expansive monetary policy. Our monetary policy is aimed at reducing the pressure on the franc."
The franc was little changed at around 1.0950 against the euro (EURCHF=) on the SNB's announcement.
Negative rates have triggered increasing unease in Switzerland, acting as a charge on banks, while insurers and pension funds have been wrestling with low bond yields.
WAIT AND SEE MODE
"The negative interest rates have caused disastrous problems," Christoph Blocher, the strategy chief of the right-wing Swiss People's Party, told newspaper Schweiz am Sonntag. "Whoever saves is being dispossessed; that hits the pension funds, savers in general and a lot of ordinary people."
"The negative interest rates, together with the already extremely low interest rates (for bonds), make it even more difficult for pension funds to achieve the necessary returns they need to fulfill their promises," said Hans Peter Konrad, director of the Swiss pension fund association.
The SNB was waiting to see how the franc exchange rate developed, and especially what the European Central Bank does with its stimulus package, before changing its own policy, analysts said.
"The SNB will remain in 'wait and see' mode," said Arnaud Masset, market analyst at Swissquote Bank.
"However, the issues from Brexit are only now beginning to materialize both on the economic and political front and may turn up the heat on the Swiss franc in the coming months."
Britain's vote to leave the EU "has caused considerable uncertainty and makes an assessment of the global economic outlook more difficult", the SNB said, adding it had revised downwards its growth expectations for the UK and the euro area.
Such an environment left the SNB little room to change its policy, economists said.
"While the SNB acknowledged that the recovery of the Swiss economy was somewhat stronger than expected, the SNB has become slightly less optimistic on the outlook of the European economy following the Brexit referendum," said Ursina Kubli, a forex strategist at J. Safra Sarasin. "Therefore, an expansive monetary policy is still fully warranted in Switzerland."