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While the fall in CPI rates appear to have bottomed, inflation remains deep in negative territory, with prices continuing to decline at an annual rate of 0.5%. This is unlikely to phase the SNB, however, with the Bank likely satisfied with their current expansionary policy. Downside pressure on EUR/CHF has alleviated and EUR rates markets are signalling little chance of a further cut to the ECB's deposit rate, lessening the pressure on the SNB to take any near-term policy action to maintain the rate differential.
Growth in oil prices and a more sanguine economic outlook for H2 this year will likely bring forward the SNB's forecast for when CPI will re-enter positive territory, allowing the bank to stand pat on policy for now. The SNB will likely continued to stress – as they did through 2020 – that the board still have room to manoeuvre on interest rates. But, it's clear that – for the time being – their current 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.
Figure 1: SNB haven't felt the need to intervene in currency markets for months
Source: MNI/SNB
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.