Tomorrow we have one of the most important events on the economic calendar for the Swissie, and that is the interest rate decision with related data from the SNB.
Because the Swiss central bank meets less frequently than others, when it does issue a decision, it gets more attention and can have a bigger impact on the market.
The interest rate itself is likely to be a non-event since virtually no one is expecting the SNB to take action. In fact, the latest survey of economists shows that the expectation is for the bank to keep rates on hold until at least 2021. What will be relevant, then, is the monetary policy statement that comes out with the rate decision.
This Time is Special
Three hours before the release of the Monetary Policy Assessment (MPA), and well before traders get to their desks in Europe, the SNB will publish its Financial Stability Report (FSR). Usually, this isn’t a market-moving event. But, it does contain a review of the internal and international economic situation as the bank sees it.
This time around, the FSR could give us some insight into what we might expect to see in the MPA later. It could, therefore, help the market price in those expectations ahead of the event.
The Central Bank’s Outlook
Despite most other central banks moving towards an easing pattern, most of the expectations for the SNB are for the next move to still be on the upside. Even the lackluster economic performance and relatively low inflation rate in recent months have not dissuaded that view.
Switzerland is, in the bard’s words, suffering from success. As the world economic outlook darkens, investors are clamoring for a safe haven in the Franc. This is keeping the currency strong relative to its trade partners. This has been a constant headache for the SNB, which has repeatedly tried to push their currency in the other direction.
What Could Cause the SNB to Take Action?
So far, the SNB has been trying to talk down the Franc, while it’s been maintaining an extraordinarily accommodative stance for well over four years.
Unlike other countries, Switzerland is dependant on the financial industry. And low rates for an extended period of time make things difficult for banks. So, the SNB is extra hesitant to lower rates, even if they feel that the high value of the Franc is affecting Switzerland’s other main economic activity: exports.
The ECB is expected to cut rates in the near future, and analysts penciling a July rate cut for the Fed. This puts extra pressure on the SNB to cut rates to stave off further strength in the Franc.
The rate cuts in other major banks might also provide some economic stimulus and help relieve the safe-haven flows. That would help the SNB fight off the pressure to take action for a while.
The Bottom Line
The key comments that we’ll be looking at to get a gauge of the market reaction are the SNB’s view of the Franc’s strength (broadly expected to reiterate that the currency is too strong), and its expectation for inflation trends.
Last time, the bank cut their expectations for inflation this year to 0.3%, and to 0.6% for next year. If we get a further cut to those expectations, analysts might reassess their position and begin expecting a more neutral outlook rather than a hike.
Without any change in the SNB’s stance and outlook, the Swissy would be at the whims of the market and respond mostly to expectations of the world’s economic situation.