SNB surprisingly cuts its Policy Rate by 25bps to 1.50% (exp. 1.75%); FX language reiterated "willing to be active in the foreign exchange market as necessary", Ready to intervene in FX; Loosening permitted by inflation progress

via SNB

INFLATION

• For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability. According to the new forecast, inflation is also likely to remain in this range over the next few years.
  


• With its decision, the SNB is taking into account the reduced inflationary pressure as well as the appreciation of the Swiss franc in real terms over the past year


• SNB will continue to monitor the development of inflation closely, and will adjust its monetary policy again if necessary to ensure inflation remains within the range consistent with price stability over the medium term.

GDP

• Swiss GDP growth was moderate in the fourth quarter of last year. The services sector expanded again, while value added in manufacturing stagnated. Unemployment rose somewhat further, and the utilisation of overall production capacity was normal.


• Growth is likely to remain modest in the coming quarters. The weak demand from abroad and the appreciation of the Swiss franc in real terms over the past year are having a dampening effect.

SIGHT DEPOSITS

• Sight deposits held at the SNB will be remunerated at the SNB policy rate up to a certain threshold, and at 1.0% above this threshold (prev. 1.25%)

FORECASTS

Reaction details (08:37)

• In reaction to the surprise rate cut, EUR/CHF vaulted to its highest level since July 2023 with the pair moving from 0.9679 to 0.9768.

Analysis details (08:42)

• In short, the SNB delivered a largely unexpected 25bp rate reduction justified by the significant progress they have made in combating inflationary pressures in recent months, the view that inflation will remain within the 0-2% target bound for the next few years and marked CHF appreciation.


• As usual, the statement does not provide firm guidance on the policy path ahead, though makes clear there is optionality to adjust to ensure inflation remains within the target band. The magnitude of the downward adjustment to their inflation forecasts means further easing in Jordan's term is possible. For guidance on this, we look to the press conference with Chairman Jordan.


• Elsewhere, the language on FX has been maintained with no buying or selling bias evident in the statement (reminder, the selling foreign currency bias was removed in December).

21 Mar 2024 - 08:30- Fixed IncomeData- Source: Newswires