Switzerland: More of the same from the SNB – ING


Charlotte de Montpellier, Economist at ING, notes that the SNB left rates unchanged today and still believes the franc is “highly valued” as the target range for the 3-month Libor was maintained between -1.25% and -0.25% and the interest rate on sight deposits with the Swiss National bank remains at -0.75%.

Key Quotes

“Moreover, the central bank reiterated its willingness to intervene as required in foreign exchange markets to prevent an appreciation of the Swiss franc.”

“The Bank still believes the franc is “highly valued” and insisted on its volatility over the past three months and thinks it is still considered a safe-haven asset. Indeed, according to the SNB, political factors in the euro area are the main culprits for the recent appreciation of the franc.”

“Even though the central bank still considers the global economy will continue to grow above its potential, the growth outlook is more cautious than it was in March.”

“The SNB believes GDP growth will reach 2% in 2018.”

“Given the increased risks and the decrease of the KOF-leading indicators, we have slightly revised our GDP forecast for 2018. GDP grew at 0.6% quarter on quarter in 1Q18, and we revise our estimates to 2.2% on average in 2018 from the previous 2.3% estimate. We expect 2.0% growth in 2019 compared to 1.1% in 2017.”

“The SNB revised upwards its conditional inflation anticipation (i.e. based on the assumption of no change in monetary policy) for 2018 to 0.9% from 0.6% estimated in March.”

Looking ahead

  • We believe the SNB won’t change its policy anytime soon.
  • Given the SNB’s worst nightmare is a strong appreciation of the franc, we believe it will wait for the ECB to start raising rates.
  • Given the ECB is not expected to hike before the end of summer 2019, we think the Swiss National bank won’t raise its rates before December 2019 either.”

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