The SNB defends the CHF floor with an interest rate of now -0.25% and if needed, a further cut and interventions are possible, notes Nordea Markets.
“The SNB’s aim is to defend the minimum exchange rate of EURCHF 1.20. An even stronger Swiss franc would be a severe burden for the economy and could push it from price stability to deflation,” Nordae argues.
More to come:
“The move indicates that policy makers currently worry more about capital inflows related to the Russian crisis than about ECB QE looming. We don’t think that the deposit rate has reached the lowest possible bound. If needed, a further cut and interventions are possible. The floor will not move,” Nordea adds.
Impact On EUR/CHF:
“The market has reacted to the cut by bringing the CHF weaker: EURCHF hit 1.2097. The move essentially means the SNB will not have to intervene to buy EUR, but the negative rate creates incentive for private sector to do so. The CHF remains one of the most overvalued currencies in the G10 universe. We stick to our forecast of EURCHF moving toward 1.25 next year, potentially higher, as the financial outflow resumes,” Nordea projects.
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