CHF: SNB could look at excess reserves – ING

The SNB meets to set policy today, at a time when Switzerland faces a 39% tariff on exports to the US, when CPI is running at just 0.2% year-on-year and when its preferred, inflation-adjusted measure of the Swiss franc is close to the extreme highs of early 2024, which prompted a dovish shift in tone. Yet only one of 25 economists surveyed by _Bloomberg_ expects the SNB to cut the policy rate from 0.00% into negative territory, ING's FX analyst Chris Turner notes.

EUR/CHF to continue trading near 0.92/93

"While the SNB has said that all options are open on monetary policy, such as taking rates negative again or more concerted FX intervention to sell the Swiss franc, we believe its hands are quite tied. What we would look out for today would be two things: 1) any change in rhetoric to express more concern over the franc, such as wording that the franc is 'highly valued' or that the SNB is prepared to intervene 'more strongly'. 2) Any tweaks to the rate the SNB charges on excess reserves."

"Currently, the SNB operates a system whereby a negative charge of 25bp, i.e. 25bp lower than the 0.00% policy rate, is applied on excess reserves. Excess reserves are defined as anything the banks hold over 18 times their minimum reserves. If the SNB wanted to do something about Swiss franc strength, it could either cut that 18x factor on minimum reserves – exposing more bank reserves to that 25bp charge. Or it could extend that 25bp charge to 50bp. Either of those moves on excess reserves could see the SNB accused of 'stealth' easing, which could briefly hit the franc."

"Barring a surprise cut in the policy rate, however, we doubt any bounce in EUR/CHF lasts long. And we see EUR/CHF continuing to trade near 0.92/93 over the coming months. Next year, however, more bullish upward momentum in eurozone growth and eurozone yields should carry EUR/CHF higher."