SNB's Maechler: Reaffirms pledges on FX intervention, negative rates

The Swiss National Bank's Andréa M Maechler, Member of the Governing Board, has crossed the wires saying that ‘any intervention’ requires an analysis of cost/benefits - plenty of jawboning going on here.

Key comments:

• Negative rates are working, still, have plenty of room for fx intervention.
• The attractiveness of CHF has ‘enormously increased’.
• Expansive monetary policy remains necessary.
• Reaffirms pledges on FX intervention, negative rates.
• Swiss inflation pressures remain weak.
• Negative rate is important because it helps reduce the attractiveness of the Franc.

FX implications 

This will likely become a major theme in the FX space in the near future while risk-off flows will flood into the Yen and perhaps ti a lesser a degree, the CHF, as markets fear the SNB's rugged manhandling in controlling the strength of their currency, holding no bars when it comes to timing nor care for the wider industry (casting minds back to when the SNB removed the floor of the EUR/CHF even after saying that it was not something that they would do just out of the blue).

Currently, there is no acute pressure on EUR/CHF. Analysts at ING Bank explained that CHF sight deposits have only risen CHF1bn since early June, "suggesting little or no FX intervention from the SNB to limit CHF strength. Yet as 2H19 progresses and more clarity emerges on ECB rate cuts and its plans for quantitative easing, expect SNB policy to come under greater scrutiny."

This begs the question, that to prevent the CHF becoming even more ‘highly valued’, can the SNB take negative rates (now -0.75%) even deeper into negative territory and could it undertake a fresh round of large-scale FX intervention?  Maechler seems to suggest that it can - So it is something to keep in mind with the European Central Bank coming up next month and heightened trade risks along with subsequent concern over global growth, not to mention recessionary data coming out of what are supposed to be the leading economic powers of the world - EUR/CHF is already trading close to the lows of the year.

"Expect the market to now question the Swiss national bank’s ability to match ECB rate cuts and undertake large scale FX intervention. We can see the inflation-adjusted CHF trade-weighted index moving back to 2015 highs, which should mean EUR/CHF at 1.05,"

analysts at ING Bank argued.