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MNI STATE OF PLAY: SNB On Sidelines As Franc Hits 4-Month High

The franc is strengthening, but for the moment the SNB will be content to point to its ability to intervene if necessary.

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With the franc trading around its strongest level in four months at 1.09 to the euro, the Swiss National Bank is likely to repeat its assessment of the currency as "highly valued" and reaffirm its willingness to intervene if necessary at its June quarterly Monetary Policy Assessment on Thursday.

But the SNB, which dropped its commitment to intervene "more strongly" in FX markets in March, is under little pressure to move to keep the lid on the franc as it did last summer. It will leave its policy rate and interest on sight deposits at −0.75%.

In March the SNB forecast Q2 2021 inflation at 0.3%, coming off -0.4% in Q1, or 0.2% for the year. Annual GDP growth was put at 2.5-3%. But the Swiss economy remains subject to high levels of uncertainty, as seen in a 0.5% fall in Q1 GDP, following Q4 2020's 0.1% growth.

Overall, the Bank could sound relatively optimistic, while reiterating the need to maintain monetary and fiscal support during the Covid recovery period, and highlighting the ongoing necessity of deeply negative rates for the foreseeable future.