Euro area weakness is set to adversely affect the Swiss economy, which we
\nexpect to stagnate in the second half of this year. Even though we expect
\nSwiss growth to regain momentum next year, this growth pause implies a
\ndelay in the build-up of domestic inflationary pressures that we eventually
\nexpect to materialise. Consequently, we have pushed back our forecast for
\nthe first SNB rate hike to June 2016 (from December 2015 previously).
\nMarket pricing, however, suggests a still later date for rate hikes, with
\nforwards showing a rise in the 3-month CHF Libor only in late 2016. <\/p>\n
We see market pricing as too dovish. Notwithstanding its current
\nweakness, the Swiss economy has been growing steadily over recent
\nyears. Disinflationary pressure from the sharp appreciation of the Swiss
\nFranc (CHF) exchange rate at the peak of the Euro area crisis in 2011 is now
\nabating. Credit growth remains buoyant. Indeed, the SNB is worried about
\nrising imbalances in the housing sector. Although macro-prudential tools
\nhave been employed to counter such imbalances, in our view the SNB is
\nunlikely to see these measures as a permanent and complete substitute for
\ntraditional policy instruments. <\/p>\n
The SNB\u2019s exchange rate ceiling against the Euro is often seen as a binding
\nconstraint on its future interest rate decisions. But the exchange rate
\ncommitment is only likely to become a constraint on rate decisions if the
\nCHF remains close to the 1.20 level against the Euro. There are several
\nreasons that would argue for a depreciation of the CHF against the Euro,
\nopening up the possibility for the SNB to eventually start tightening policy.
\nMost importantly, we expect the situation in the Euro area to gradually
\nimprove again over the course of the next year, thereby reducing the risk of
\na re-emergence of safe haven inflows into the CHF. Moreover, models
\nexplaining the CHF using interest rate differentials and measures of overall
\nmarket uncertainty already currently point to a weaker CHF. And the
\ndecline in long-dated volatility makes the CHF attractive again as a funding
\ncurrency for carry trades.<\/p>\n","protected":false},"excerpt":{"rendered":"
According to Goldman Sachs, the SNB\u2019s exchange rate ceiling against the Euro is often seen as a binding constraint on its future interest rate decisions. But the exchange rate commitment is only likely to become a constraint on rate decisions if the CHF remains close to the 1.20 level against the Euro….<\/p>\n","protected":false},"author":1,"featured_media":37790,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1763,1954,2073,1671,2027,1943,1651,1437,1710,1693],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/37792"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=37792"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/37792\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/37790"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=37792"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=37792"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=37792"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}