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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.”