Stefan Koopman, Market Economist at Rabobank, notes that the Swiss National Bank kept the 3-month Libor target range at -0.25% to -1.25% and the interest rate on sight deposits at -0.75%.
“This wasn’t a big surprise, even though the CHF has risen sharply against the EUR in the past two weeks. The SNB decided to join the Federal Reserve and the Bank of Japan in their warnings against the turmoil on global financial markets that stems from the British referendum vote. In fact, SNB President Jordan explicitly stated that “next week’s UK referendum on whether to remain in the EU may cause uncertainty and turbulence to increase. The SNB will be monitoring the situation closely and will take measures if required.”
This, of course, is SNB talk for increased intervention in the FX markets, which is something we expect them to resort to before they’ll do another rate cut. Note that the combination of FX interventions and ultra-low interest rates along the entirety of the curve (even the 30y rate has now set foot into sub-zero territory!) has been relatively successful in chasing away FX inflows.
Nevertheless, when things get really pear-shaped, the CHF is still one of the world’s safe-haven currencies of choice, despite the SNB’s efforts. This makes the franc very susceptible to the rising risk of Brexit and a sudden deterioration in market sentiment. Since we don’t think that the EUR would get unscathed through a “Leave”-vote on June 23 either, it’s not unthinkable that demand for an alternative, non-EU currency, would spike once again.”
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