Thursday, 19 September, 2019
SNB TO BOW TO EUROZONE PRESSURE
SNB TO BOW TO EUROZONE PRESSURE SNB TO BOW TO EUROZONE PRESSURE Given the narrowing in the policy differential between the SNB and ECB since last week, pressure is building on the board to restore the buffer between Swiss and Eurozone rates. However, the SNB may face logistical and political resistance to lower rates, including the ramifications for the domestic banking system and the scrutiny of the US Treasury. As such, the SNB will likely opt for policy action, but in limited size. A 10bps cut to the policy rate would fit these criteria and signal the Bank wish to retain a healthy buffer with the ECB. Dovish risk: A front-loaded 25bps rate cut and a recommitment to aggressive action to stem upside pressure on the CHF would likely indicate a continuation of mass FX intervention. While this may be effective in establishing an implicit floor in EUR/CHF (accompanied by a further rise in weekly sight deposit data), it’s unlikely the EUR/CHF cross will rally substantially given the ECB’s imminent resumption of asset purchases. Hawkish risk: SNB opt to keep policy unchanged, citing the sufficient policy gap between ECB and SNB rates built in since 2015. Any downgrade to language around FX interventions is an outside risk but would prompt markets to eye an implicit tolerance limit to the size of the SNB balance sheet.
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