Via eFX (with many, many thanks)
Credit Suisse: We expect strong language from the SNB but no action at this stage. Although we cannot rule out the possibility that the SNB imposes a small negative interest rate, say -5bps, simply to demonstrate that it is willing to act. We thus expect the SNB’s most likely course of action to be to reiterate the 1.20 floor in EURCHF, stress its willingness to intervene, and continue to threaten negative rates. In the event that the market responds to this by testing the 1.20 floor, we would expect the SNB to intervene aggressively.
Goldman: We expect rates on hold (SNB 3-Month Libor Target Rate at 0.00%) and for the SNB to reconfirm its minimum exchange rate target against the Euro.
Morgan Stanley: Our base case is for no change in rates and maintenance of current monetary policy, including keeping the EUR/CHF floor at 1.20. This is not to say that the SNB will not defend the floor if necessary. “Indeed, the most likely scenario, in our view, would be further intervention from the SNB to keep the floor above 1.20. Inflows are unlikely to be as strong as they were during the Euro Area sovereign crisis, and therefore the central bank is certainly up to the task of making the requisite necessary balance sheet expansion to defend 1.20. We remain of the view that if EUR/CHF moves close to 1.2020/1.2010 then the SNB would come into the market and buy EUR/CHF, keeping the exchange rate close but not below 1.20.
Deutsche: We believe an SNB rate cut to negative matters more than markets appreciate. First, there is more than double the amount of excess cash in Switzerland than the Eurozone even though Euro GDP is twenty times as big. The impact of negative rates on the Swiss financial system would therefore be much bigger. Second, the Swiss yield curve is lower and flatter than Europe, so the opportunity to term out cash deposits to avoid negative rates is less. Third, many banks are already charging customers for keeping excess balances, but the costs are piecemeal and threshold-dependent…We would expect negative rates to put downward pressure on the European short-end and meaningful upward pressure on EUR/CHF in particular. As a result we like the risk reward of being long EUR/CHF with a 1.25 target
SEB: We forecast the SNB Governing Board will leave the 3 month Libor target band unchanged at 0.00%-0.25%. Furthermore, the Swiss franc’s minimum exchange rate against the euro of 1.20 will continue in place. Once again, the bank will stress that the currency remains highly valued and that its present parity will be defended with the utmost determination. While the probability that a negative deposit rate may be introduced to ease upward pressures on the Swiss franc has increased, we believe the SNB Board will refrain from doing so just yet.
UBS: We see low probability that negative rates would be the first policy choice of the central banks, but long USDCHF remains attractive. Since intervention in 2010, CHF generally weakens directly ahead of policy meetings.
BNPP: The SNB meeting will be closely watched amid discussion on whether the central bank will adopt a negative policy rate to counter appreication pressure on the CHF after the ECB’s easing. However, with the central bank still not being forced to accumulate reserves in its defense of the 1.20 EURCHF floor, the SNB may prefer to save this last bullet for now.
Credit Agricole: should the SNB indeed consider pre-emptive measures, the EUR/CHF 1.20 floor appears likely to be shifted. Regarded by policy makers as the main tool with which to steer monetary conditions, increasing pressure on the EUR/CHF floor (ie, due to the ongoing impact of the recent ECB policy shift) could force stronger intervention and/or the reconsideration of negative interest rates. In the former’s case, EUR/CHF buying appears likely to benefit GBP via rebalancing (diversification) activity, while the later case will drive an even greater ‘yield-wedge’ between GBP and CHF.
JP Morgan: It remains to be seen whether the SNB will cut the deposit rate as early as the quarterly meeting on September 18th. The dilemma for the SNB, which presumably why it has not acted on interest rates since before the floor was introduced, is that a further easing is interest rates is not necessarily appropriate for the Swiss economy, not least as this would run counter to the SNB’s efforts to ensure financial stability through a slowing in credit growth and house prices. Failure to cut this week would probably ensure an outright test of 1.20, so the stakes are high. Should the SNB cut we would raise our forecasts for EUR/CHF for a couple of quarters, albeit still retain a longer-term downward trajectory for the cross. The Swiss economy is fundamentally healthier and less deflation-prone than the Euro area, so it is not obvious to us that the SNB will be in a position to match ECB easing for as long as is necessary for the ECB to reflate the Euro area.
Barclays: The SNB is widely expected to keep its target rate at 0.0% when it meets next Thursday. This meeting is likely to be of particular interest to the market following EURCHF testing the 1.20 target last week, but quickly rebounding following the SNB’s announcement that would not preclude negative interest rates, in an attempt to fight deflationary pressures and stick to its commitment of maintaining the floor against the EUR.
