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MNI SNB Preview - March 2023: Bank Liquidity Provision Should Clear Path for More Hikes

Executive Summary:

  • Bank seen raising rates by 50bps, reinstating the Eurozone-Swiss rate differential
  • Sluggish return to inflation target seen persisting, justifying extra tightening
  • Global banking turmoil should curtail impulse to hike 75bps, despite high CPI
Full preview, including summary of sell-side views here:

MNISNBPrevMar23.pdf

The Swiss National Bank enter this quarter’s policy meeting caught between burgeoning price pressures and increased fragility of the domestic financial sector. The pressured, and swift, tie-up of UBS and Credit Suisse has raised questions about the viability of Swiss banks, however the central bank should see financial instability as a tangential risk at this stage. This makes a 50bps rate hike the most likely outcome, maintaining the prevailing Eurozone-Swiss rate differential evident ahead of last week’s ECB decision.

The argument against the SNB tightening further on financial stability concerns will hinge on how successfully the bank will view their liquidity provision and brokering of the UBS - Credit Suisse tie-up as containing financial stability risks. While markets have undergone considerable volatility, signs of stabilisation since the weekend suggest the bank will be undeterred from their inflation-oriented approach this week.

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