- SNB is closely monitoring fallout from the Iran war and can steer the franc’s exchange rate without limits if necessary
- In uncertain times such as these, we are particularly vigilant
- We have unrestricted room for manoeuvre with regard to the SNB policy rate and foreign exchange market interventions
- Full report here
SNB’s Chairman Martin Schlegel reiterated that the central bank is prepared to act to shield the Swiss economy from the Middle East conflict’s fallout. Schlegel made it clear that the SNB remains particularly vigilant in these volatile times.
Central to the bank’s strategy is the Swiss franc’s strength, which traditionally acts as a safe haven in risk-off periods. Schlegel signalled that the SNB is ready to intervene in FX market without limits if necessary to prevent an excessive appreciation that could damage the country’s export-driven economy or threaten price stability. This commitment highlights the bank’s determination to prevent the franc from becoming overvalued.
Schlegel further reassured markets that the SNB possesses unrestricted room for maneuver regarding its policy tools. This includes both adjustments to the SNB policy rate (negative rates in this case, not a rate hike) and active interventions in the foreign exchange market.
While inflation in Switzerland has remained low compared to other major economies, the uncertainty surrounding the outlook has increased significantly. Schlegel noted that the path for both inflation and economic growth has become much more unclear, though the economic data has been pointing toward lower economic activity and stronger price pressures. By reaffirming its willingness to act without constraints, the SNB aims to project a sense of stability and control.
The market is currently pricing in a 64% probability of a rate hike in December, although I think such bets are just wrong in the current situation as the slowdown in Swiss economic activity is more likely to outweigh the inflation threat from the supply shock.
This article was written by Giuseppe Dellamotta at investinglive.com.
