Julien Manceaux, Research Analyst at ING, notes that the Swiss National Bank left its monetary stance unchanged at its March meeting.
Key Quotes
“The target range for the 3m Libor therefore remains at -1.25%/-0.25% with a negative deposit rate of -0.75% (the exemption is also likely to be left unchanged at 20 times the minimum reserve requirements). As last week’s ECB actions did not trigger a strong depreciation of the euro, leaving the effective exchange rate of the CHF only marginally affected by the ECB decisions, no major change was expected.
This morning, the SNB gave its first inflation forecast for 2018, which is still far from high (0.9%). The inflation forecast for 2016 and 2017 have been revised downwards by respectively 30bp and 20bp to -0.8% and +0.1%, which means that the SNB expects almost no improvement in the inflation outlook for 2016 (inflation in 2015 was -1.1%).
It also expects a slower economic recovery than at its December meeting. It is therefore too early for the SNB to consider that the Swiss economy can live with a EUR/CHF closer to parity. This is why the SNB reiterated this morning that “the negative interest rate and the SNB’s willingness to intervene in the foreign exchange market serve to ease pressure on the Swiss franc”. This shows that FX interventions are likely to continue (the current round of intervention – the third of this kind – is also the smaller in size so far, with an intervention of 120 Bn CHF since May 2014), but we think that the SNB will remain very cautious before it acts on interest rates again.
By any measure, today looked too early. We think that another rate cut (of limited size) is possible in the second half of the year if, as we think will be the case, the interest rate spreads between EUR and CHF decrease too much to remain EUR supportive. As a consequence, we think that the CHF should be maintained above 1.05 against the euro and close 2016 around 1.10.”
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