In December, in light of accelerating pressure on the exchange rate floor and growing expectations of further ECB easing (QE), the SNB lowered its interest on sight deposit account balances to -0.25% (on balances exceeding CHF10m) and its three-month Libor target range to -0.75% to 0.25%.
Ahead of the ECB meeting in January, the SNB discontinued the minimum exchange rate floor and reduced the sight deposit rate to -0.75% and the Libor target range to -1.25% to -0.25%. In the aftermath, the Swiss franc gained nearly 20% against the euro but has since stabilised around 10% stronger.
In trade-weighted terms, the gain is smaller, mainly due to continued dollar strength. If sustained, this could lower inflation and growth by some 0.3-0.5pp in 2015.
Societe Generale notes...
We expect no change in policy from the Swiss National Bank (SNB). Despite having been forced to take difficult decisions in recent months, with the exchange rate appreciation implying a monetary tightening but with interest rates (and oil) now lower, we think the SNB will need further evidence on both the inflation and growth outlook before taking any further action.
