SNB kept all rates unchanged at its meeting today, as widely expected. Both the Libor target midpoint and the sight deposit rate were kept at -0.75%.
EUR/CHF little changed on the decision, reflecting broadly unchanged market expectations regarding future SNB decisions, i.e. the markets are still projecting at least one 10bp cut in H2. Crucially, we do not see this happening and expect the SNB to keep key rates at -0.75% in the near future (details below). USD/CHF moved lower as USD crosses were under pressure this morning following a dovish FOMC last night.
The Swiss CPI profile was revised slightly higher for 2015-16 and a slightly lower for 2017, which is due to base effects from a higher oil price than assumed in March. Projections are still conditional on an unchanged Libor rate and a weaker CHF. That said, the SNB is still on track for a major miss of the inflation target unless the CHF weakens substantially from here.
Importantly, all three members of the Governing Board gave intro remarks at the press conference. SNB President Jordan first, as usual, on monetary policy, followed by Danthine on financial stability and notably Zurbrügg on the impact of negative interest rates. The combination of their remarks is noteworthy. Jordan first said: 'We intend to retain the current interest rate level for now and will monitor its effects closely'. Later Zurbrügg concluded: 'Initial experience has shown that the interest rate instrument is also effective in negative territory. As intended, negative interest on sight deposits at the SNB was rapidly transmitted to all segments of the money and capital markets. In the current situation, negative interest fulfils a very important monetary policy purpose: to help correct the overvaluation of the Swiss franc over time'.
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