Implications for the CHF from ECB actions will determine SNB's need to intervene

SNB, as widely expected, left policy rates unchanged at its March policy meeting. The statement released by the central bank and the new inflation projection do not signal that any further easing is imminent. SNB is also more cautious regarding the economic outlook and revised down the growth outlook to 1.0%-1.5% (+1.5% previously).

Despite inflation likely to undershoot the SNB’s target for a prolonged period, the SNB is unlikely to ease policy further. The updated inflation forecast for 2016 (-0.8%) and 2017 (+0.1%) show a small downward revision, mostly on the back of a lower expected path for oil prices. The SNB now expects inflation to become positive again only in Q3 2017, compared with Q1 2017 previously.

SNB still views CHF as “significantly overvalued" and will be ready to counter any upward pressure on the CHF, a lot of which is dependent on the ECB action and its implications for the CHF. However as ECB shifts away from policy rate cuts towards credit easing measures, there is a reduced likelihood that the SNB will need to intervene in the FX market or cut policy rates further.

“We continue to believe that, owing to the potential negative side effects, only renewed significant appreciation pressure on the CHF would make the SNB lower its policy rates further," notes Goldman Sachs in a research note.