Swiss National Bank will announce its monetary policy decisions at 8:30 GMT today.

Economic conditions

• Switzerland GDP is around $ 685 billion however growth rate has sharply slowed down. In third quarter economy has failed to grow at all.
• During 2011 European debt crisis inflation fell to -1%, however came to positive ground in 2014 gradually. However since mid of last year inflation decelerated to negative territory and worsened to -1.4%.
• Swiss yield curve is negative up to 10 years, before recent pullback 10 year yield was trading close to -0.5%. 3 year yield is trading at -1%.
• Switzerland enjoys high current account balance, 7% of GDP.
• Unemployment rate is stable close to 3.2%. Overall debt level is low.
• Swiss companies are facing considerable headwinds from slowdown in China, emerging markets and stronger Franc.

Current policy

• SNB has kept policy rates at -0.75% and three months target range for libor at -1.25/-0.25%.
• SNB abandoned the Euro peg of 1.20 in January 2015, days before ECB announced QE.

Challenges -

• Swiss franc remained reasonably high priced and even higher after SNB scrapped the Euro peg.
• Increasing FX reserve close to $10 billion per month suggests, considerable SNB intervention to prevent Franc's appreciation.
• Economic activities as indicated by PMI, retail sales have slowed down considerably, since the peg was removed.
• Inflation as measured by CPI remains at worst level since 2009 crisis, while PPI at record low.
• Stronger Franc against Euro is likely to weigh on trade balance in future.
• Slowdown in China is hurting Swiss luxury exports.

Expectation today

Expectation is that Swiss bank will hold monetary policy steady.                                                           

• Swiss bank's credibility is at risk, as SNB fails to take action to curb the deflationary environment.
• Moreover action by SNB to weaken the Franc, is highly recommended for economic activities.

However, SNB balance sheet approaching 90% of GDP, considerable doubts remain over what can SNB do, even if it want to, other than just cut rates further, which doesn't seem to be working

Franc is currently trading at 0.985 against dollar. Policy decision might turn out as non-event if SNB fails to take action today.