June 17, 2022 17:20 GMT
- Three factors probably pushed the SNB to act so boldly: first, the 75bp rate hike announced the previous day by the Fed; second, the likelihood the ECB introduces a new backstop instrument in July to prevent financial fragmentation (which could enable the ECB to hike rates faster); and third, recent currency market developments.
- We now see the SNB hiking its policy rate by 50bp in September and then by 25bp at each quarterly meeting until at least March 2023, bringing it up to at least +0.75%. Risks are tilted towards bolder moves, depending on the exchange rate and policy actions by other central banks.
- The SNB is now actively considering quantitative tightening (QT, i.e. actively reducing its balance sheet), although we feel the conditions are still not right for the SNB to sell its currency reserves at this stage.