MNI SNB WATCH: Dovish Tilt, With March Cut Not Ruled Out

With inflation continuing to surprise policymakers to the downside, a March rate cut by the Swiss National Bank will not come as a surprise, although a move at the June meeting -- which follows those by the Federal Reserve and the European Central BAnk-- remains most likely.

The SNB, which since the December meeting finds itself seeking a replacement for current board Chairman Thomas Jordan who steps down in the autumn, will look at the continued downward move in headline inflation rates, which continues to defy the Bank's expectation of a rebound. In February, headline inflation stood at just 1.2% year-on-year, with core inflation at just 1.1%.

Market pricing shades towards a June cut, but with almost 10bp of hikes priced in for the upcoming meet, the chances of an earlier move are not negligible. Some analysts note not too much should be made of the timing of other central bank meetings, as the SNB showed at the start of this tightening cycle it was prepared to pre-empt the ECB.

FRANC OFF THE RADAR

Communication from staff has been more dovish in recent months and policymakers are no longer signalling a preference for a strong franc, an FX stance that has seen the currency weaken.

Back in January, Jordan warned that the battle against inflation looks better than last year, but is “not yet completely won”, adding that the SNB’s forecasts show “inflation should remain below 2% for the next three years”.

The language accompanying any move will be closely watched, with an unchanged policy rate -- currently at 1.75% after 250 bps of tightening in the current cycle – likely to bring a dovish tone pointing to lower rates in June if inflation continues its current trajectory. Unchanged policy could also see the SNB lower its inflation outlook over the forecast horizon

Against that, a March cut would be likely to bring a warning that future policy moves will be gradual as the SNB takes a cautious approach to easing.

NEW HEAD

The news that Jordan is stepping down in September shouldn't impact on the March decision, with policy seen to be institutionally driven rather than influenced directly by an individual. Local media see the current Vice-President, Martin Schlegel, as Jordan’s most likely successor.

The decision is expected at 0830GMT Thursday, with a press conference hosted by Jordan to start around 0900.