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10 Dec 2015
Many words, little news from the SNB - UBS
FXStreet (Córdoba) - The Swiss National Bank (SNB) kept its policy mix unchanged today at its quarterly monetary policy assessment. The UBS analyst team commented on the decision, and why they expect the franc to remain strong against the euro.
Key Quotes
“The target band for Libor stays at -0.25% to -1.25%, whereby the SNB continues to target the central rate at -0.75%. The bank announced it would continue to employ a mix of negative rates and interventions to prevent the Swiss franc from appreciating too much.”
“The forecast for the Swiss economy also remains unchanged. The SNB is optimistic that growth and inflation will rebound. It expects GDP to accelerate to 1.5% in 2016 and inflation to rise from -1.1% this year to -0.5% next year and +0.3% in 2017. Its inflation forecast, which is based on the assumption that the centrally targeted interest rate stays at -0.75%, reaches values above 1% only in 2018. According to its own forecasts, the SNB will meet its inflation target - keeping inflation between 0% and 2% - in 2017 and 2018.”
“The SNB did not discuss the risk that its forecasts were too optimistic. But it's important to note that inflation has undershot the SNB's target for the last five years. The SNB's approach here is different than the ECB's, which is to actively fight deflationary forces with its quantitative easing (QE) program. The ECB employs an active QE strategy while the SNB reacts defensively, trying to limit the Swiss franc appreciation.”
“Because of this fundamental difference between the two central banks, we expect the Swiss franc to stay strong versus the euro. Only a switch in the ECB's strategy towards a more restrictive monetary policy would, in our view, help to ease the upside pressure on the CHF. We continue to see waves of CHF strength towards 1.06 over the next three months and only a soft rise of EURCHF to 1.10 over the next 12 months.”
Key Quotes
“The target band for Libor stays at -0.25% to -1.25%, whereby the SNB continues to target the central rate at -0.75%. The bank announced it would continue to employ a mix of negative rates and interventions to prevent the Swiss franc from appreciating too much.”
“The forecast for the Swiss economy also remains unchanged. The SNB is optimistic that growth and inflation will rebound. It expects GDP to accelerate to 1.5% in 2016 and inflation to rise from -1.1% this year to -0.5% next year and +0.3% in 2017. Its inflation forecast, which is based on the assumption that the centrally targeted interest rate stays at -0.75%, reaches values above 1% only in 2018. According to its own forecasts, the SNB will meet its inflation target - keeping inflation between 0% and 2% - in 2017 and 2018.”
“The SNB did not discuss the risk that its forecasts were too optimistic. But it's important to note that inflation has undershot the SNB's target for the last five years. The SNB's approach here is different than the ECB's, which is to actively fight deflationary forces with its quantitative easing (QE) program. The ECB employs an active QE strategy while the SNB reacts defensively, trying to limit the Swiss franc appreciation.”
“Because of this fundamental difference between the two central banks, we expect the Swiss franc to stay strong versus the euro. Only a switch in the ECB's strategy towards a more restrictive monetary policy would, in our view, help to ease the upside pressure on the CHF. We continue to see waves of CHF strength towards 1.06 over the next three months and only a soft rise of EURCHF to 1.10 over the next 12 months.”