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UBS: First rate hike since 2007

SNB
  • We had expected a 50bp hike to happen only at the September meeting. The monetary policy statement
    notes that "It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilise inflation in the range consistent with price stability over the medium term."
  • The SNB also dropped the sentence that the Swiss franc is "highly valued" in its policy statement as we had thought likely. The SNB has over recent months prepared the ground for a changed exchange rate assessment by arguing that the nominal appreciation does not entail an appreciation in real terms, given the inflation differential between Switzerland and abroad.
  • They also retained the willingness "to be active in the foreign exchange market as necessary" to ensure appropriate monetary conditions, Chairman Jordan in his remarks specified that the SNB would consider selling foreign currency if the Swiss franc were to weaken. This is the most explicit reference so far that the balance sheet will also play a role in SNB policy normalisation.
  • SNB announced that the tiering multiplier would be lowered from 30 to 28 from 1 July, as we had thought likely. This was done to ensure that a sufficient amount of sight deposits is subject to negative rates and to prevent upward pressure on money market rates. It can also be seen as sign that the banking system should prepare for the end of negative rates.
  • Previously, we had expected the SNB to hike rates by 50bp in September, followed by four more 25bp hikes at the following meetings to bring the policy rate to +0.75% by September 2023. With the 50bp hike brought forward to June, we maintain our expectation for a 50bp hike in September (to +0.25%), followed by rate hikes at each forthcoming meeting by 25bp until March 2023, by which time the policy rate would stand at +0.75%. The SNB announced that from now it will hold press conferences after every meeting which will help to explain further rate hikes.
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