Swiss SNB Policy Rate (Q4) 1.00% vs. Exp. 1.00% (Prev. 0.50%)

Rates

• It cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term (prev. “It cannot be ruled out that further increases in the SNB policy rate will be necessary to ensure price stability over the medium term.”)

FX

• To provide appropriate monetary conditions, 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.”)


• No FX classification provided, last update was “Highly Valued” in March. (prev. No FX classification provided, last update was “Highly Valued” in March.)

Economy

• Inflation is likely to remain elevated for the time being (prev. “Inflation will remain elevated for the time being.”)


• The situation on the labour market remained positive (prev. The situation on the labour market has remained positive.”)

Exemption Threshold/Liquidity

• Banks’ sight deposits held at the SNB will be remunerated at the SNB policy rate of 1.0% up to a certain threshold. Sight deposits above this threshold will be remunerated at an interest rate of 0.5%, and thus still at a discount of 0.5 percentage points relative to the SNB policy rate. (prev. “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.”)

Reaction details (08:40)

• Heading into the announcement, EUR/CHF fell to a 0.9837 session low. In wake of the as-expected 50bp increase immediate upside in EUR/CHF occurred to a 0.9893 peak over the course of a few minutes. Upside perhaps spurred on a 'buy the rumour, sell the fact' narrative given the as-expected move and the inflation forecasts now showing Switzerland at a peak, limiting the need for further tightening.


• For reference, while around a 20% chance via market pricing was ascribed to a 25bp move, no knee-jerk hawkish action occurred on the 50bp hike; perhaps due to the modest CHF appreciation seen heading into the policy announcement.

Analysis details (08:40)

• Overall, very much as expected from the SNB. A 50bp hike was delivered to 1.00% with the only 'major' tweak being the replacing of "further" with "additional" in the forward guidance line; though, it remains to be seen what, if any, bearing this alteration has. As such, we look for guidance from Chairman Jordan on how much further tightening they actually expect, given forecasts implying Switzerland now at the inflation peak of 3.00%.


• Rates aside, FX language was reiterated and the Exemption Threshold altered to account for the 50bp move. On FX, we are attentive to see whether Jordan reiterates the willingness for two-way intervention, as necessary.

15 Dec 2022 - 08:30- Fixed IncomeData- Source: SNB