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SWITZERLAND: Goldman Sachs & Bank of America Expecting SNB Cut in September

SWITZERLAND
  • With inflation undershooting the projections, and CHF appreciating to its strongest level against the Euro in August, Goldman Sachs now expect the SNB to cut rates by 25bp on Sep 26 to a terminal rate of 1%. Previously, GS had forecast the SNB to have already reached the terminal rate following the June cut. Goldman Sachs now see risks skewed towards a further cut in December in the event of further downside surprises to inflation and CHF strength.
  • Concerning CHF strength, Bank of America believe it is worth emphasising that the recent move has very little to do with a fundamental reassessment of the Swiss economy. Inflation remains well below target and the real effective exchange rate had recouped a large bulk of its depreciation since the start of the year before the inevitable month end flows pushed CHF higher.
    • One area for concern is strong correlation between CHF and FX volatility which suggests some hedging demand for CHF.
    • This is not the news that the SNB had hoped for having already eased 50bps this year. It all but solidifies the need for more and BofA also expect a 25bps cut in Sep. Their bias remains renewed weakness versus many of the high beta currencies, assisted by SNB aversion to CHF strength combined with manufacturing concerns about the impact on the bottom line. Low for longer rates seem to be the direction of travel.
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