As broadly expected the Swiss National Bank maintained interest on sight deposits at -0.75% and the target for the three-month remains at between -1.25% and -0.25%. The central bank also reiterated that it will remain active in the foreign exchange market should further developments justify it. So far, the statement was quite similar to the previous one, which was released in March. Overall, the statement is more dovish than the previous one.
On the inflation front, short-term conditional forecast have been revised to the upside - with Q2, Q3 and Q3 2018 figures being increased to 0.9% from 0.6% in June – following the rise in crude oil prices. However, the SNB lowered its expectations for the end of 2019 amid lower growth expectation in the eurozone and persistent political tensions among EU members – more specifically the political uncertainty in Italy.
In light of those developments - downward revision in inflation forecast for 2019, political uncertainties in Italy, stalling growth in the EU and trade war between the largest economies in the world – the SNB has every reason to delay further rising rates.
Accordingly, we have revised our EUR/CHF expectations to the downside. We do not expect the single currency to break the 1.20 threshold before this autumn at the earliest. The September ECB meeting will be determinant, as the SNB won’t relax its efforts before the ECB takes a clear path toward monetary policy normalisation.
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