Swiss National Bank expected to shun interest rate cut: Reuters poll

Swiss National Bank expected to shun interest rate cut: Reuters poll

© Reuters. Swiss National Bank expected to shun interest rate cut: Reuters poll© Reuters. Swiss National Bank expected to shun interest rate cut: Reuters poll

By John Revill

ZURICH (Reuters) – The Swiss National Bank will buck the central bank trend on Thursday and avoid cutting its interest rates, which are already deep in negative territory, to tackle the coronavirus pandemic, a Reuters poll found.

All but two of 29 economists surveyed expect the SNB to ignore cuts introduced by the U.S. Federal Reserve, the Bank of England and others to help their economies weather the outbreak.

Instead, bolstered by the European Central Bank’s decision not to cut rates last week, they expect SNB Chairman Thomas Jordan to keep the bank’s policy rate locked at minus 0.75%.

Jordan is also expected to leave the interest rate on sight deposits frozen at minus 0.75%, the same rate maintained for more than five years as the SNB seeks to dent investor appetite for the safe-haven Swiss franc.

The currency has risen around 3% this year against the euro, hitting its highest level since July 2015, as investors bought less risky assets to offset the downturn in global equity markets.

The SNB has so far relied on market interventions to stem demand for the franc, according to analysis of weekly sight deposit data.

Last week, the central bank lifted its currency market interventions to their highest level in more than three years, data indicated on Monday, increasing its foreign currency purchases by 4.4 billion Swiss francs ($4.7 billion).

The SNB is expected to stick with this tactic as it watches the actions of the ECB, and the rate of franc appreciation, economists said.

The SNB has long sought to weaken the highly valued franc, which hurts Swiss exporters and also threatens to turn Swiss inflation negative.

“The SNB is in a difficult situation with other central banks cutting rates,” said Credit Suisse (SIX:) economist Maxime Botteron. “If the SNB cuts before the ECB, then it leaves the Swiss less room to move if the ECB cuts its rates later on.

“At the moment we don’t think the SNB will cut rates on Thursday, but it’s a very fluid situation that can rapidly change.”

The government’s 10 billion franc support package for businesses hit by coronavirus will also have taken some pressure off the SNB to act.

Still, a few economists reckon the SNB will lower rates later this year, with Credit Suisse forecasting a cut to -1.0% during the second quarter and Societe Generale (PA:) a cut to -0.85% in the third quarter.

In future, the economists also expect the SNB to react to the franc’s strengthening by stepping up its verbal interventions, and changing its description of the franc from “highly valued” – the term used for the last 2-1/2 years – to something stronger.

“The SNB are between a rock and a hard place with interest rates in Switzerland already extremely negative and if you lowered them further, the opportunity costs of keeping francs under your mattress are reduced,” said Mirabaud chief economist Gero Jung.

“If they shoot now, they don’t have any ammunition left for the future.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Latest Category Posts

You May Also Read