MNI INTERVIEW2: Low SNB Rate Peak To Prompt FX Intervention

The Swiss National Bank is likely to hike by another 75 basis points in December following September’s increase by the same amount, but while it is keeping pace with other central banks for the moment, it will stop tightening at a lower level of rates while possibly intervening to shore up the franc, Swiss-based economist Charles Wyplosz told MNI.

The SNB’s benchmark rate could rise from 0.5% to somewhere closer to 2.2-2.5%, said Wyplosz, professor emeritus at the Graduate Institute, Geneva, anticipating that the resulting capital outflow as investors seek higher rates in euros and dollars could prompt intervention. (See MNI INTERVIEW: SNB Could Be Forced Into Intra-Meeting Hike)

“The SNB will probably not want to rekindle inflation, so they will have to intervene to appreciate the exchange rate,” he said in an interview. “They have never done QE and they don't do QT, but they might be led to do their version of QT and shrink their balance sheet, which is currently enormous.”

Having indicated in June and September’s monetary policy assessments its willingness to intervene in both directions, the SNB will not have a target level for the exchange rate in mind, Wyplosz said.

“Ideally, if they have, say, 5% less real appreciation per year relative to the others [currencies], they could appreciate the nominal exchange rate by 5%. That’s the rule of thumb that I expect them to use.”