Swiss National Bank likely to keep monetary policy on hold in December

The Swiss National Bank is likely to keep its monetary policy on hold on Thursday, noted Societe Generale in a research report. The ECB’s decision last week might have led to a rise in hopes of an end to the appreciation pressures on the Swiss franc, but continued high policy uncertainty in Europe would possibly restrict any major weakening of the currency, stated Societe Generale.

The third quarter real GDP growth came in weaker than projected at 0 percent quarter-on-quarter, with subdued household consumption and a negative contribution from net exports. Investment was up 0.5 percent sequentially, equally distributed between equipment and construction investment, whereas government consumption fell slightly.

However, while looking at monthly business surveys, growth is expected to rebound in the fourth quarter, ending 2016 close to 1.5 percent, according to Societe Generale. The strong exchange rate is likely having a major dampening effect on next exports’ contribution; however, with enough domestic strength remaining to avert recession.

Headline inflation has also come in weak recently, struggling to surpass 0 percent. With slightly higher oil prices, inflation is likely to continue to rise a bit; however, the outlook continues to be far from convincing for the SNB. The Swiss National Bank’s inflation forecast might therefore again requires to be downwardly revised at the short end, and probably increase less steeply through the course of next year.

For now, the central bank is unlikely to undertake any action and will take comfort from the fact that Brexit, the U.S. elections and Italy’s referendum have not led to any major safe-haven capital inflows. For 2017, the possibilities of beginning a normalization of policies would depend on the inflation outlook and also on what other central banks might do.

Further hikes in rate by the U.S. Fed and less accommodation by the ECB might give enough space to begin hiking rates back towards zero by the end of 2017, said Societe Generale. The housing market continues to be a concern, and would continue to worry policy makers. If there are rises in any more threats to the economic growth and inflation outlooks, the Swiss National Bank might consider cutting policy rates further; however, such moves might require additional measures to protect the banks, added Societe Generale.