CHF: SNB signals stronger FX stance – Nomura

Nomura analysts note that the Swiss National Bank (SNB) kept its policy rate at 0.00% and strengthened its guidance on FX intervention as the Swiss Franc (CHF) has appreciated. Very low Swiss inflation and a stronger CHF are seen prompting FX purchases in Q1. Nomura expects the policy rate to stay at 0.00% and sees no further rate cuts.

SNB holds rates and eyes FX action

"The Swiss National Bank (SNB) left its policy rate at 0.00% at its March meeting, as we and consensus expected. More significantly, it changed its guidance on FX intervention since the last policy meeting to say that “given the conflict in the Middle East, the SNB's willingness to intervene in the foreign exchange market has increased. The SNB thereby counters a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland”."

"Inflation in Switzerland is very low (0.1% y-o-y in February), in part due to foreign goods and services deflation, which has persisted for over two years as a result of a strengthening CHF. According to the SNB’s analysis, CHF has risen by 2.5% on a trade-weighted basis since mid-December. We believe that this strengthening is likely to cause the SNB to intervene with FX purchases in Q1 to limit appreciation pressures and their impact on inflation."

"Indeed, Chairman Schlegel confirmed at the press conference that Switzerland’s accord with the US means that the SNB can intervene in FX markets, and that the SNB’s intention would not be to gain an unfair advantage (source: Bloomberg). Data on SNB FX interventions in Q1 will not be available until the end of June, however."

"We believe the SNB will leave its policy rate unchanged at 0.00% for the foreseeable future. We forecast inflation to accelerate in the months ahead, supporting the view that another rate cut will not be necessary."

"Chairman Schlegel reiterated at the press conference that the bar for introducing negative interest rates remains elevated (source: Bloomberg). Indeed, with inflation likely to rise this year as a result of the global energy price shock (although we note Swiss consumers are more insulated from a rise in energy prices than their European neighbours) the need for a negative policy rate appears somewhat reduced, though declining imported product prices remain an inflation concern."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)