Swiss SNB Policy Rate (Q2) 1.75% vs. Exp. 1.75% (Prev. 1.5%): cannot be ruled out that additional rises in the SNB policy rate will be necessary

RATES

• cannot be ruled out that additional rises in the SNB policy rate will be necessary

FX

• In the current environment, the focus is on selling foreign currency

INFLATION

• Inflation has again increased over the medium-term.


• The lower oil and gas prices and the stronger Swiss franc are having a dampening effect over the short term.


• From 2024 onwards, the new forecast is higher than in March. The reasons for this are ongoing second-round effects, higher electricity prices and rents, and more persistent inflationary pressure from abroad.

GDP

• SNB expects modest growth for the remainder of the year. Subdued demand from abroad, the loss of purchasing power due to inflation, and more restrictive financial conditions are having a dampening effect.

Reaction details (08:40)

• In reaction to the disappointment in some quarters from the SNB not delivering a 50bps move amid the softer 2023 inflation profile, as well as comments on FX selling, EUR/CHF rose from 0.9791 to 0.9830 before extending the move to 0.9837.

Analysis details (08:40)

• In short, the decision was as-expected, though disappointed some looking for a 50bps hike.


• Decision to hike by 25bps was as a result of recent inflationary developments and subsequent commentary from officials at the Bank with Chairman Jordan stating that inflation is more persistent than thought with both second- and third-round effects being seen.


• The reason to step down to a 25bps increment was likely based on the marked pullback from the prior in May’s CPI data.


• The hawkish takeaway from the release came via the higher inflation forecast for 2024-2025, which could be indicative of a higher for longer regime.


• Note, ahead of the release, 23/33 polled thought the June hike will be the last, given the trajectory of inflation, though the SNB will likely remain data-dependent. Market pricing heading into the announcement saw the terminal rate at around 2.13% in March 2024, it is now seen at 2.21% in March.

22 Jun 2023 - 08:30- Fixed IncomeData- Source: Reuters