SNB keeps cool as franc surges to 2015 highs

Bloomberg

The Swiss National Bank’s (SNB) long-standing claim that the franc is “highly valued” is looking harder to justify as
officials watch it strengthen to within striking distance of parity with the euro.
When the currency climbed through what was once considered a key line in sand to 1.04 per euro last month, the surge wasn’t met with big central-bank interventions. That laid-back approach suggests SNB officials led by President Thomas Jordan are growing more comfortable with the level of the exchange rate.
“The Swiss franc isn’t highly valued anymore,” said Adriel Jost, partner and managing director at the consultancy WPuls, and a former SNB staffer. While the SNB’s own data point to an overvaluation, Jost calculates that the franc is actually slightly undervalued on a trade-weighted basis. “This explains the SNB’s reticence concerning interventions in the past few weeks.”
One reason to be sanguine is Switzerland’s comparably low rate of inflation versus the euro area or the US, helping shift the balance for purchasing power. Even so, an unbothered stance is all the more remarkable considering the franc is at the highest since the aftermath of the SNB’s seismic abandonment of its cap on the currency in 2015.
The SNB’s statement will arrive during a final flurry for 2021 of global central bank meetings at a time when they are all struggling to assess different threats posed by inflation and of the omicron variant of the coronavirus.
The US Federal Reserve has shown more alarm at the surge in prices that the ECB.
Switzerland has so far bucked the trend with much weaker headline inflation, reaching 1.5%. The currency’s strength and a consumer-price basket of which energy constitutes only 4% meant more muted effects in data than seen elsewhere.
For its super-easy stance, the SNB needs to keep money market rates close to its policy rate of -0.75%. But the Swiss Average Rate Overnight, known as Saron for short, has drifted higher, and officials could decide that it needs to be pushed back down.
Credit Suisse Group AG economist Maxime Botteron believes the SNB may tackle the problem by giving banks less of an exemption on the cash being hit with negative rates, by lowering the threshold to 27 from 30.
The SNB could also call for reactivate the countercyclical capital buffer for banks’ mortgage exposure, to temper real estate market exuberance. Having suspended the requirement during the initial weeks of the pandemic, the SNB has since warned repeatedly about the buildup of risks.
Any formal decision lies with Switzerland’s executive, which acts based on the SNB’s