SNB to be on hold as conditions have started to ease mildly

Modest CHF depreciation in the past few weeks, in addition to better-than-expected Q2 growth, has eased conditions somewhat and relieved some pressure from the SNB. Nonetheless, recent financial volatility and China growth concerns, in addition to the imminent risk of further ECB easing, pose key risks for the SNB, it will be watched closely and met with further FX interventions and likely additional cuts. 

"The Swiss National Bank (SNB) is expected to keep its policy rate unchanged at -0.75 percent and preserve the target range for the three-month Libor at -1.25/-0.25 percent at its 17 September meeting, but the downside risks to economic activity and inflation from an overvalued exchanged rate remain highlighted", says Barclays. 

Moreover, the SNB will once again reiterate its ability and readiness to ease policy further should a sustained CHF rally materialize. However, the CHF has depreciated nearly 3% in real effective exchange rate terms since its mid-August highs, with EUR/CHF appreciating above 1.10 for the first time since the SNB stepped away from the floor in the beginning of the year. 

"Looking ahead, significant downward pressure is expected on the CHF on the basis of negative returns to capital and currency overvaluation. The USD and the JPY are superior safe-haven currencies in periods of market stress", added Barclays.