MNI PREVIEW: SNB Under Pressure To Cut Rates, Address FX Level

By Luke Heighton

     FRANKFURT (MNI) - The Swiss National Bank faces pressure to cut interest

rates Thursday as the Covid-19 pandemic looks set to push Switzerland into

recession, with bank President Thomas Jordan having already indicated the

current rate of -0.75% offers space for further monetary easing .

     However, with risk premia on Swiss corporate bonds rising, even if the SNB

would much prefer to follow the ECB and keep rates steady, it is a close call as

to whether it will feel compelled to go to -1.0% for the first time in three

years or hold out for as long as possible.

     Having described the franc as "highly valued" following successive monetary

policy assessments, there is now a chance Jordan will deem it "overvalued". The

bank has been active in the FX markets as it seeks to relieve upward pressure on

the swiss franc, and, while mindful of its presence on the U.S. Treasury's list

of 'currency manipulators,' Jordan will once again stress the SNB's readiness to

intervene "as necessary."

     In December the Bank reported projected growth of between 1.5% and 2% in

2020, helped by an additional 0.5% generated by major international sporting

events. By comparison, the KOF Institute now sees GDP growth of 0.3% in 2020 at

best, and -2.3% at worst, before recovering somewhat in 2021. But there is

considerable uncertainty over the course and duration of the epidemic and

measures to contain it, not least border controls.

     This leaves the SNB searching for alternatives to increase the policy space

available, although it may be too soon to start debt-buying operations by

purchasing Swiss Confederation bonds on the secondary market.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MT$$$$,MX$$$$]