by George Dorgan
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It was obvious already at the latest SNB Monetary Policy Assessment, the SNB is becoming more and more hawkish. At the forefront is its ueber-hawk Jean-Pierre Danthine, the person responsible for the overheating Swiss housing market. He has now announced:
SNB would end franc limit once it raises interest rates
- The Swiss National Bank will abolish its cap of 1.20 francs (FXF) to the euro once the SNB starts increasing interest rates, which are at zero, bank Vice President Jean-Pierre Danthine says. The EUR-CHF rate is 1.2307.
- “The day the SNB decides to raise rates, there can no longer be a restricting minimum exchange rate,” Danthine says. “Today the absolute priority is the cap, which we will keep in place as long as necessary.
- The SNB imposed the limit in September 2011 in order to prevent deflation and a recession. However, the SNB’s ultra-loose monetary policy has led to soaring house prices and fears of overheating. source Bloomberg
No influence on CHF
We do not think that this statement has a big influence on the EUR/CHF exchange rate. Even the end of the CHF cap should not move EURCHF quickly downwards. In our minds the influence of Forex traders on FX rates is limited. Global macro data (see our daily column) and the behaviour of international investors that buy Swiss stocks or not, are far more important (see the asset market model, visible also in the Swiss International Investment Position).
Things would be different, however, if the SNB raises interest rates before their counterparts. But probably she wants be in line with rate hikes of other central banks. In the meantime, possibly a couple of years, she tries to use the countercyclical capital buffer to prevent excesses in the real estate market.
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Tags: Asset Market Model,Housing market,Interest rates,Swiss National Bank
