Newsquawk Preview: SNB policy announcement due Thursday 25th March

Overall

The SNB is likely to maintain its current policy stance after largely refraining from implementing additional support measures during the height of the pandemic, and therefore further accommodation is unlikely to be warranted at this stage. However, the recent postponement of lockdown easing and an increase in infections means that the outlook remains inherently uncertain. As always, focus will be on language around the Franc as despite depreciating recently the Bank will likely retain its "highly valued’ classification; but, the commentary around interventions could potentially be tweaked. Elsewhere, inflation has printed well below the 0.00% 2021 forecast thus far and could well garner an explicit mention – although it is perhaps, on balance, too soon to tweak the forecast. Finally, the exemption threshold was not mentioned at the last gathering but should be maintained at 30x. Note, as this is the Q1 gathering it does not include a press conference from Chairman Jordan.

Prior Meeting

In December, the SNB left all policy measures unchanged; rates held at -0.75%, reiterated the CHF classification of “highly valued” and continued to state a willingness to increase FX interventions as necessary. In-fitting with the prior meetings, the exemption threshold was seemingly maintained at 30x as it did not merit any mention during the statement or press conference. As a reminder, the meeting took place just after the US Treasury labelled Switzerland as a currency manipulator which prompted pushbacks from Chairman Jordan, reiterating that interventions are not a form of currency manipulation and there is little in the way of possible concessions regarding monetary policy. Finally, as some had been looking for, the CPI views for both 2020 and 2021 were downgraded to -0.7% and 0.0% from -0.6% and 0.1% respectively; bringing the 2020 forecast more in-line with recent CPI prints, but walking back the earlier and in hindsight pre-emptive, increase to the view announced earlier in the year.

Domestic Situation 

While not at the same stage as the likes of the UK, Switzerland is still making progress with the COVID-19 vaccine rollout which sees just shy of 60% of those above 80 and roughly a third of those 70-79 having received a vaccine. However, the Government has recently announced it will be postponing the plan to relax COVID-19 restrictions due to an increase in the number of cases and potential commencement of a third wave of infections. Nevertheless, survey data for February, particularly the KOF Indicator which saw a notable increase to 102.7 vs prev. 96.5 bringing the figure above the long-term average of 100, points towards an end to the recent downward trend in activity. The release highlights that the goods-producing sector has become more positive though slight negative signals are emanating from foreign demand; overall, steering towards an increase in economic activity for the period ahead. Although, the situation has now ‘deteriorated’ given the postponement of lockdown easing but unfortunately the next KOF release is after this week’s SNB meeting and so will not provide an indication about how, if at all, this has affected sentiment. Turning to hard data, Y/Y CPI prints have come in at -0.5% for both January and February this year, which is some way below the 0.00% target for 2021. As such, we could perhaps see a tweak to this view at some stage although there is still plenty of time, particularly if activity picks up in H2, for this target to be attained; therefore, on balance, it may be left unchanged at this meeting but the soft performance thus far for 2021 could warrant a brief mention. Finally, Q4 GDP came in markedly above market expectations but would not have encapsulated the post-Christmas resurgence in cases and as such can be regarded as stale while the unemployment rate has been relatively steady around the 3.5% mark. Overall, the domestic situation seemingly points towards keeping all current measures on hold and is unlikely to be deemed as sufficiently dire to justify an increase in stimulus, particularly as the Bank largely left measures unchanged during the height of the pandemic last year.

CHF

The Franc’s classification will likely be maintained at ‘highly valued’, as has been the case since Chairman Jordan altered the language in-between meetings from ‘even more highly valued’ to the current classification in May 2020. Since the December gathering, the CHF has seen marked depreciation with EUR/CHF comfortably above 1.1000 but just off recent early-March peaks of 1.1151; taking the pair to levels not seen since June/July 2019. However, while this depreciation is pronounced, it still resides within CHF levels that have been regarded as ‘highly valued’ a classification that has remained in-situ as far as ~1.17 in EUR/CHF back in 2018. Therefore, it is unlikely that recent currency developments would spark a classification change but it could merit inclusion in the statement. Particularly, as Zurbruegg has recently remarked that even when taking into account the aforementioned Franc weakening, FX interventions and NIRP remain necessary. On interventions, the 2020 total stood at CHF 110bln vs CHF 13.2bln in 2019 and while sight deposits continue to show FX activity is ongoing the rate of this appears to have reduced further from the pace around the December gathering; a pace that had already decreased from activity seen at the height of the pandemic. Typically, the SNB statement pledges a willingness to “intervene more strongly in the foreign exchange market” a line that has been a feature of the statements from the June 2020 gathering onwards; given the recent CHF depreciation, Credit Suisse believes it is plausible the statement could omit this line though continue to maintain a willingness to intervene in general. However, the resurgence in COVID-19 domestically (see above) and recent releases from the SNB serve as factors against such an alteration in the current uncertain environment at least.

Exemption Threshold

As has been the case for multiple meetings now the exemption threshold for domestic banks from the increased deposits due to intervention activities by the SNB is likely to be maintained at 30x. Although, the burden on domestic banks has continued to increase as evidenced via sight deposits, though at a slower pace (outlined above), an increase to this threshold does remain a real – albeit unexpected – possibility.