SNB to keep intervention threat alive, rates on hold

BERN / Bloomberg

The Swiss National Bank (SNB) will probably stay on hold at its monetary policy meeting on March 17 as banks in the country are already facing pressure from negative interest rates, economists and strategists say in notes to clients.
The fact that the euro remained broadly stable against Swiss franc after the European Central Bank (ECB) meeting lessens pressure on the SNB to act this week. SNB may intervene in the forex market to stem the franc’s appreciation.

Commerzbank
The measures that the ECB announced in March are no doubt increasing pressure on SNB to cut interest rates again, a team of economists, including Christoph Weil, write in a note to clients.
That said, Commerzbank still sees a probability of a move at well below 50 percent as the SNB will probably cut rates further only in an extreme situation.
The negative interest rates are already imposing a noticeable burden on Swiss banks and a flight to cash could no longer be ruled out with another rate cut.
The SNB will only lower the key rate further if recent ECB decisions exert lasting pressure on franc and the bank has to intervene on the forex market in much greater volumes than before.

Unicredit
The SNB is likely to stay on hold and fight any appreciation in the franc through intervention in the forex market, team of strategists including Kathrin Goretzki say in a note to clients. The bank has some more wiggle room to further cut rates but, at some point, more negative rates may fuel a flight to cash which wouldn’t be intended by the SNB.
SNB President Thomas Jordan will once again stress that the central bank will intervene in the market if necessary as it has apparently been the case during the last few weeks given the increase in sight deposits.

Credit Agricole
It’s too early for the SNB to consider lower rates as the euro is broadly stable against the franc, team of strategists including Valentin Marinov, write in a note to clients.
The franc remains a sell on rallies as the central bank is likely to keep all the options open regarding lower rates. SNB is also likely to continue to threaten with direct intervention in the currency market if needed.

Barclays
The appreciation of the euro has to some extent alleviated the pressures for SNB to react with stronger measures, team of strategists including Nikolaos Sgouropoulos, write in a note to clients. Barclays expects the bank to keep all the policy parameters unchanged this week.
Any appreciation of the franc against the euro could force the SNB’s hand, leading it to reduce the exemption from negative deposit rates that it gives on the majority of domestic banks’ reserves.

The timing of such a policy move remains quite uncertain.
Nomura
SNB is likely to keep the policy on hold for now, barring any renewed franc strength following the last ECB meeting, strategists Jordan Rochester and Yujiro Goto write in note to clients.
Nomura continues to expect the franc to weaken this year and may look to take advantage of any currency gains after the March 17 meeting. Strategists expect a limited reaction to an unchanged policy as the market pricing for a cut has been significantly reduced.

BNP Paribas
SNB is likely to leave policy rates unchanged this week, economist Ken Wattret writes in a note to clients. The stronger-than-expected gross domestic product growth in the fourth quarter last year and the recent pickup in inflation rates favor a continuation of the status quo.
The high level of foreign currency reserves remains a concern, but the reorientation of the EBC policy away from the negative policy rates should ease pressure on euro against the franc.