SNB maintains its Policy Rate at 1.75% as expected; prepared to be active in the FX market as necessary (removed reference to “selling”)

GUIDANCE

• Will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term. [Prev. “it cannot be ruled out that a further tightening of monetary policy may become necessary to ensure price stability over the medium term.”].

FX

• The SNB is also willing to be active in the foreign exchange market as necessary. [prev. “To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency.”]

HOUSING

• Momentum on the mortgage and real estate markets has weakened noticeably in recent quarters. However, the vulnerabilities in these markets remain.

Via SNB

Reaction details (08:36)

• Two-way action was seen in EUR/CHF which initially immediately moved lower from 0.9499 to 0.9460 before recoiling back to highs of 0.9518 and then stabilising just under pre-announcement levels around 0.9492.


• Modest dovish reaction seen in market pricing.

Analysis details (08:44)

• Largely as expected from the SNB with the key rate maintained at 1.75% and the emphasis on selling foreign currency removed. Most pertinently, the inflation forecasts have seen relatively modest downward adjustments and while this does see CPI within the 0-2% band for 2024 as a whole, inflation is still seen rising in Q2/Q3-2024; though, this is now to just the top of the band, rather than September's guidance for it to eclipse it.


• Overall, the SNB still holds the assessment that "uncertainty remains high" around inflation and as such has not guided us towards the direction of the next move, merely stating they remain ready to adjust policy as necessary. Given this, participants will remain focused on upcoming inflation prints for insight into the development of the rental rate of inflation.


• In short, the SNB is barring a marked upward shock seemingly at the policy peak and the timing for a first rate-cut will likely be driven by the assessment/observation of inflation across Q2/Q3-2024, where it is forecast to rise to 2.0% once again.


• From the upcoming press conference, any commentary from Chairman Jordan on current market pricing will be keenly sought alongside whether his recent assessment that he is unsure if Swiss rates have peaked is maintained or not.

14 Dec 2023 - 08:30- Fixed IncomeData- Source: Newswires