The SNB is facing a complex situation

Nothing surprising came out of this SNB meeting. The increase in the oil price is the main explanation of the upward revision of the inflation outlook. However, the effects of oil are short-termed. In a couple of months, this should disappear. The SNB sounds a bit too optimistic, in our view, on the US and European outlook, which will be also key to its monetary policy. Things might be slower than what the SNB displays.

However, there are only a few lines on the main concern: the Brexit. This is the major concern for Central Banks around the world, and, of course, it is including the SNB. If there is a Brexit, the euro and the pound will drop sharply. As a consequence, the Swiss franc will increase strongly. That is unacceptable for the SNB, as it already considers that the CHF is “significantly overvalued”. The only two options that the Bank will then have are : lowering the interest rates (but that might be inefficient, now that the rates are negative in EUR) and/or intervening more (but the foreign currency reserves are at an all-time high, and that might cause upheavals and additional risks). Both solutions are, in reality, unsatisfying. 

The SNB is in a complex situation. Even if the rates did not change during this meeting, we believe that they will probably intervene more and lower the rates, if a Brexit happens.

LAURENT BAKHTIARI
IG Bank Premium Client Manager (Apr 2014 – July 2016)