Back
10 Dec 2015
SNB Preview: Status quo likely to be maintained – RBS
FXStreet (Delhi) – Research Team at RBS, expects the SNB to stay on hold at its policy meeting today as the ECB’s less aggressive set of easing measures takes the pressure off the Swiss central bank to ease further.
Key Quotes
“However, risks to the outlook remain elevated given global disinflationary pressures, negative Swiss interest rates, weak global trade outlook and the possibility of the ECB easing further in 2016. Hence, the statement and quarterly Monetary Policy Report are likely to reflect the SNB’s concern over the economic outlook, developments abroad and its determination take further action if necessary to weaken the CHF over time.
The CHF continues to look overvalued on a long term basis. In trade weighted terms, the CHF is broadly unchanged since the SNB’s September meeting. However, the currency remains well above long run averages.
Inflation remains deeply negative. CPI remained at a record low of -1.4% yoy in November. Producer and import prices also remain deeply in negative territory at - 6.6% yoy. Hence there is a risk that the SNB revises down its inflation profile at this month’s meeting.
The Swiss economy may have been weathering the stronger CHF better than expected this year but growth unexpectedly stalled in Q3. This was a slowdown from the 0.2% qoq pace in Q2.
Risk of further action: Monetary policy abroad, notably in the Euro zone, can continue to impact and shape the SNB’s policy response in 2016. Still, if CHF gains were to accelerate, then SNB sensitivity to the existing size of its balance sheet could prompt a move to more deeply negative rates, leaving CHF looking less attractive medium term.
No change expected from the SNB this month. We expect the SNB to reiterate its 'two-pronged monetary policy approach’ of negative interest rates and a readiness to intervene in FX markets but to hold the deposit rate at -0.75%. This may provide some support for the CHF, although the market has reduced expectations of a cut at this meeting post the ECB last week. Coupled with the SNB’s negative rate policy, this leaves the CHF looking less attractive over the coming year.”
Key Quotes
“However, risks to the outlook remain elevated given global disinflationary pressures, negative Swiss interest rates, weak global trade outlook and the possibility of the ECB easing further in 2016. Hence, the statement and quarterly Monetary Policy Report are likely to reflect the SNB’s concern over the economic outlook, developments abroad and its determination take further action if necessary to weaken the CHF over time.
The CHF continues to look overvalued on a long term basis. In trade weighted terms, the CHF is broadly unchanged since the SNB’s September meeting. However, the currency remains well above long run averages.
Inflation remains deeply negative. CPI remained at a record low of -1.4% yoy in November. Producer and import prices also remain deeply in negative territory at - 6.6% yoy. Hence there is a risk that the SNB revises down its inflation profile at this month’s meeting.
The Swiss economy may have been weathering the stronger CHF better than expected this year but growth unexpectedly stalled in Q3. This was a slowdown from the 0.2% qoq pace in Q2.
Risk of further action: Monetary policy abroad, notably in the Euro zone, can continue to impact and shape the SNB’s policy response in 2016. Still, if CHF gains were to accelerate, then SNB sensitivity to the existing size of its balance sheet could prompt a move to more deeply negative rates, leaving CHF looking less attractive medium term.
No change expected from the SNB this month. We expect the SNB to reiterate its 'two-pronged monetary policy approach’ of negative interest rates and a readiness to intervene in FX markets but to hold the deposit rate at -0.75%. This may provide some support for the CHF, although the market has reduced expectations of a cut at this meeting post the ECB last week. Coupled with the SNB’s negative rate policy, this leaves the CHF looking less attractive over the coming year.”