Giles Coghlan LLB, Lth, MA
HYCM
The Swiss National Bank (SNB) has been at the heart of preventing contagion from the Credit Suisse banking crisis. The SNB is providing large amounts of liquidity assistance in Swiss Francs and foreign currencies to stabilise markets. In the press conference SNB’s head Thomas Jordan said that there is no present need for further liquidity support as the current instruments are ‘very big, they are bold’. All is calm on the Credit Suisse front. In its latest meeting the SNB raised interest rates by 50bps to 1.50% and said further interest rates can’t be ruled out.
Inflation pressures grow
Domestic inflation pressure for Switzerland comes from electricity, tourism services, and food. The SNB noted that price increases are now broad-based. The SNB recognised second-round effects taking place in inflation and expects the global outlook for inflation to remain elevated for the ‘time being’. As a result of these rising inflation pressures, the outlook for further inflation gains was increased. Inflation for the end of this year has been revised higher from 2.2% to 2.4% for Q3 and to 2.3% for Q4 from 2.0%.
However, the SNB still sees the 2025 inflation print coming in at 2.1%, so although inflationary pressures are building the pressures are mild compared to Europe, the UK, and the US.
The summary
It was a hawkish hike as the SNB could not rule out further interest rate hikes. Short Term Interest Rate markets now see the SNB having a terminal rate of 1.91% with at least one rate cut expected into the end of the year. See the Financial Source Interest Rate tracker here:
This should keep the CHF supported and you can see that the CHF index is holding the key level around 180-190.
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If the Fed signals a slowdown at all in the coming weeks then watch for the USDCHF pair to weaken on rate differentials between the Fed and the SNB.
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