Another surprise SNB rate cut?

10 December,, Lagos – The Swiss National Bank (SNB) started the year with a surprise scrap of its 1.20 floor against the Euro, could it be planning to end the year in similar surprise fashion? Although the general consensus is that the SNB will maintain its current stance in the monetary policy meeting this week. Many analysts seem to think we may be up for a surprise rate cut as economic indicators point to a need for one.

Although, a surprise cut will not have the same push as the twin effect of the depegging against the Euro and the rate cut of January 15 which led to a Franc appreciation of over 40% at a point. Except we see a policy change which is truly monumental.

Factors supporting rate cut

However, several factors point to the possibility that the Swiss Central Bank could actually consider the option of a surprise rate cut. Considering that the European Central Bank’s policies has always influenced that of the SNB, it will be expected that the Swiss central bank will be weighting its options after the ECB disappointed with only cutting the deposit rate by 10 basis points and by extending QE by 7 months rather than expanding it. The initial decision to depeg the Euro against the CHF was based on anticipation of the launch of the ECB’s quantitative easing program. The move implementing negative interest rate was aimed at maintaining the traditional differential between EU and Swiss rates, hence, the current ECB policy stance could prompt another rate cut from -0.75% to a record low of -1.00%.

Credit Suisse foresees cut

Credit Suisse advises currency investors to consider buying USDCHF ahead of SNB meeting, identifying the opportunity as the tactical FX trade of the week.

“Our view is that the SNB will still cut this Thursday, most likely by 25bp to -1.00bp,” Credit Suisse projects.

Although ECB Mario Draghi undershot the market expectations, “our Swiss Economic Research team still believes that it will be important for the SNB’s credibility to respond to the ECB cut, especially when domestic data are so weak,” Credit Suisse added.

The SNB’s desire for a weaker Franc is clear. The central bank Chairman Thomas Jordan has said the Swiss Franc is “significantly overvalued” on several occasions. Inflation remains a major problem for the SNB, and the situation has only worsened since the price floor between the Euro and the Franc was removed. Inflation currently sits at a record low of -1.4%. Hence, a SNB rate cut at this point may not be such a bad idea for the SNB.

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