SNB hikes its Policy Rate by 75bps to 0.5% as expected; willing to be active in FX market as necessary; further rate hikes cannot be ruled out; no CHF classification in release

INFLATION 

• Inflation rose to 3.5% in August and is likely to remain at an elevated level for the time being. The latest rise in inflation is principally due to higher prices for goods, especially energy and food.

EXEMPTION THRESHOLD

• This ensures that the secured short-term Swiss franc money market rates remain close to the SNB policy rate. Banks’ sight deposits held at the SNB are remunerated at the SNB policy rate up to a certain threshold. Sight deposits above this threshold are remunerated at an interest rate of zero percent. The SNB will also use liquidity-absorbing measures.

Via SNB

Reaction details (08:35)

• Given the skew of market expectations for a 100bps move, CHF sees pronounced weakness with EUR/CHF rising from 0.9450 to 0.9600. Additionally, a dovish reaction is being seen across asset classes with Bund Dec'22 lifting from 141.10 to a 141.46 session peak alongside modest upside in the equity space, though this remains subdued overall.

Analysis details (08:45)

• A 75bp hike to 0.50% in-fitting with consensus going into the release, but shy of market pricing which was skewed towards a 100bp move; particularly given global Central Bank action in the last few sessions. As such, a pronounced dovish reaction has been seen in the CHF and in broader assets. 


• In terms of guidance, the SNB continues to say that further tightening may occur and reiterates that they are willing to be active in FX markets as is necessary - once again, a specific FX classification has not been provided and we look to commentary from rate-setters on this.


• Rates/FX aside, the SNB has altered the mechanics of its Exemption system, the Threshold for this was reduced to 28x (prev. 30x) at the June gathering, and now sight deposits above the threshold are to be remunerated at a 0.00% interest rate - essentially flipping the prior system to account for the lifting of rates into positive territory.

22 Sep 2022 - 08:30- Fixed IncomeData- Source: Newswires