That was not surprising. The SNB did not change its monetary policy this morning. Rates will remain negative at -0.75% and the target range for the 3-month Libor is unchanged at between -1.25% and -0.25%.
Over the summer the Swiss franc weakened against the single currency. Yet, for the time being the CHF remains significantly overvalued even though current levels are the lowest levels in the last two years. The central bank declared in its press release that it will remain active in the FX market.
On top of that markets have now strong expectations towards the ECB regarding the future of the monetary policy. There are definitely strong room for further EURCHF downside risks within the short-term. Indeed, the never-ending Greek issue will soon be back on the table and the Catalonian referendum is weighing on the European cohesion. As a result, we believe that actual EURCHF levels are temporary and are fully reflecting the actual weakness in the Eurozone.
Regarding the Swiss economy, it is still largely resilient despite strong CHF. Recently growth printed lower than expectations for Q2. Annualized inflation is at 0.5% for August and the SNB has revised upwards its forecasts. Unemployment rate remains stable and the SNB is optimistic “The situation on the labour market is gradually improving”.
By Yann Quelenn