MNI POV: Board likely satisfied with current policy as CHF strength capped for now

With interest rates remaining deep in negative territory and persistent FX intervention boosting total sight deposits to all-time highs, it's likely the Bank are satisfied with this expansionary structure and will keep core policy unchanged in September. Moderating upside pressure on the CHF since June will have alleviated concerns among the governing council, although persistently low inflation remains a drag on policy.

Throughout 2020, the Bank have been quick to make clear that they still have room to manoeuvre on interest rates. But, it's clear that – for the time being - this suite of tools has succeeded in containing financial market fragmentation. As such, the Bank will likely reaffirm their vigilance this quarter, stressing that the CHF is "even more highly valued", but decline to cut rates or expand their current toolkit amid a calmer market outlook.

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