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5 Nov 2015
SNB to remain in ‘wait-and-see’ mode… for now – Raboabnk
FXStreet (Edinburgh) - Strategist Emile Cardon at Rabobank believes the SNB could wait until the franc comes under significant pressure to announce additional measures (if any at all).
Key Quotes
“The increased likelihood that the ECB will lower the deposit rate once again has not gone unnoticed among market participants. Forward rates on 3 month Swiss Libor have decreased on the back of this news”.
“However, we doubt the SNB will actually lower the deposit rate, this despite comments from several SNB members that the rate can indeed be lowered. For example, SNB-chairman Thomas Jordan said that the current level is appropriate for now, but he does not rule out further steps”.
“We expect the SNB to remain in wait-and-see mode for the time being. To begin with, there is no imminent pressure in the currency market as EUR/CHF trades only a tad below the 1.09-handle. Secondly, there is still room for the SNB to intervene in this market via additional purchases”.
“It also remains the question how a cut in the deposit rate would impact the Swiss currency. One of the issues the central bank is facing, is that securing notes in a vault is cheaper than depositing it at the bank”.
“Several Swiss banks have already lowered the rates for retail clients, and at some point putting the proverbial ‘money under the mattress’ is simply a more attractive option. We therefore expect the SNB will stick to FX-interventions, but only to do so if necessary (which it hardly has been for quite some time now due to the depreciation of the Swiss franc)”.
“Only in case the FX portfolio expanded beyond, say, CHF 550bn, would we expect the SNB to make use of its interest rate tools (i.e. by lowering the rate on sight deposits to -1% or even -1.25%). The next interest rate decision is on 10 December”.
Key Quotes
“The increased likelihood that the ECB will lower the deposit rate once again has not gone unnoticed among market participants. Forward rates on 3 month Swiss Libor have decreased on the back of this news”.
“However, we doubt the SNB will actually lower the deposit rate, this despite comments from several SNB members that the rate can indeed be lowered. For example, SNB-chairman Thomas Jordan said that the current level is appropriate for now, but he does not rule out further steps”.
“We expect the SNB to remain in wait-and-see mode for the time being. To begin with, there is no imminent pressure in the currency market as EUR/CHF trades only a tad below the 1.09-handle. Secondly, there is still room for the SNB to intervene in this market via additional purchases”.
“It also remains the question how a cut in the deposit rate would impact the Swiss currency. One of the issues the central bank is facing, is that securing notes in a vault is cheaper than depositing it at the bank”.
“Several Swiss banks have already lowered the rates for retail clients, and at some point putting the proverbial ‘money under the mattress’ is simply a more attractive option. We therefore expect the SNB will stick to FX-interventions, but only to do so if necessary (which it hardly has been for quite some time now due to the depreciation of the Swiss franc)”.
“Only in case the FX portfolio expanded beyond, say, CHF 550bn, would we expect the SNB to make use of its interest rate tools (i.e. by lowering the rate on sight deposits to -1% or even -1.25%). The next interest rate decision is on 10 December”.