Further policy easing indispensable to rein in the Swiss franc

SNB President Thomas Jordan declared once again on Monday this week that the central bank still had potential to implement a more expansionary monetary policy.  Jordan noted that inflation was set to creep back into positive territory by mid-2017 but this depended heavily on oil prices and the franc's exchange rate.

Policy easing in the neighboring euro area has raised speculation that the SNB may decide to lower rates further in a bid to maintain the interest rate differential. Analysts estimate the SNB could cut its deposit rate to as low as minus 1.25 percent if needed, according to Bloomberg’s most recent monthly survey.

"Lowering the deposit rate further would cause a flight into banknotes, put significant strain on the banking system (depending on the system of exemptions), but would certainly not create any expansionary monetary policy effects" noted Commerzbank in a report

Jordan's comments come after fellow SNB policymaker Andreas Maechler said last week that the SNB could drop interest rates further into negative territory. It now charges 0.75 percent on some deposits and aims to keep three-month rates around -0.75 percent while intervening when needed on currency markets.