The SNB meeting is on Thursday
The Swiss National Bank needs to respond to the strong currency and lower rates from the ECB, according to Morgan Stanley.
The consensus for Thursday’s meeting is no change from -0.75% but Morgan Stanley and UBS are two firms that are forecasting a surprise 25 bps cut.
“What’s motivating the SNB to ease policy is inflation,” economists write in a note today. “It’s low and uncomfortably close to zero, despite loose monetary policy and a tight labour market.”
Another problem is the strength of the currency, which is putting further downward pressure on imports.
A 25 bps cut would be a big enough surprise the jolt inflation back to life and scare off CHF speculators.
Morgan Stanley recognizes that this isn’t a consensus call and say that if Jordan waits on easing now, it could take more CHF strength to change the tone, even as the central bank intervenes.
If they do cut, the market reaction might not be dramatic despite the surprise. They see a 0.5% rise in EUR/CHF, which only covers a portion of the 2% fall in the pair since the June SNB.
“The ECB’s large easing package has reduced the effectiveness of SNB monetary policy in weakening the franc,” they write.
The decision will be announced Thursday at 0730 GMT.
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