Swiss rate decision comingBy Peter Rosenstreich
This week the Swiss National Bank will meet to broadcast monetary policy. In light of higher domestic inflation, ECB “normalization” and mounting political risk in Europe, this generally sleepy meeting will get additional attention.
At its March meeting, the SNB held sight deposit rates at -0.75% while reiterating its support in foreign exchange. We anticipate a broadly dovish communication, particularly in the light of recent ECB forward guidance. The CHF has generally appreciated, ensuring that the “highly valued” term will remain. Also, uncertainty in Europe, specifically in Italy will keep the SNB vigilant. Near term inflation forecast and growth assessment will remain unchanged despite clear improvements. The SNB will avoid sparking any speculation that might cause CHF to appreciate. Secondly, global growth and the macro backdrop are a cause for concerns for the small alpine economy, which provides plenty of coverage for the SNB. Finally the SNB has expressed concerned over overheating of the housing markets. The Swiss economy continues to surprise to the upside. Purchasing is running above average while GDP is coming off a strong Q1. Still, the SNB will be one of the last G10 movers towards normalization. Our call is for the first interest rate hike is September 2019. Risk reward trade-off for the EUR/CHF remains to the upside.