Expect SNB action if Franc rises in response to a UK vote to leave

Four of the world's top central banks - the US Federal Reserve, Bank of England, Swiss National Bank and the Bank of Japan - due to meet in the coming days, are almost unanimously expected to make no change to their extraordinary stimulus programs. Despite dealing with varying amounts or shortages of inflation, none are expected to act ahead of one of the biggest risk events of 2016 - 'Brexit referendum'.

In Switzerland, there may be some signs of inflation turning, but again, what the Swiss Franc does will matter a lot and what drives it is beyond the SNB's control. In January 2015, the SNB surprised when it gave up its cap on the franc. SNB President Jordan warned back in April that a Brexit would cause “enormous stress” in Europe.

The SNB in the past year used negative interest rates and occasional interventions to take pressure off the currency, and succeeded in weakening it roughly three percent in the past 12 months. A British vote to leave the EU on June 23 would practically guarantee a surge in the franc and SNB will counter that appreciation with more aggressive interventions. Some even expect a cut to the deposit rate, already at a record low of minus 0.75 percent.

“Obviously Brexit would be a game-changer. If the franc appreciated back to the 1.00-1.05 range and held there for a prolonged period, then the SNB would have to consider its options, with cutting the deposit rate further the most likely initial response,” said Alan McQuaid, chief economist at Merrion Capital Group Ltd. in Dublin.