SNB likely to stay on hold, action expected after referendum on Brexit

The Swiss National bank is largely expected to stay on hold at its monetary policy assessment session to be held on June 16 at 7:30 GMT. This is also the overwhelming consensus and follows steady policy since the EUR/CHF floor was abandoned in January 2015. Nevertheless, the SNB could take more action soon, upon Brexit-related CHF strength.

The SNB is largely expected to hold its deposit/3-month target rate steady at -0.75 percent. The Swiss economy had disappointed wth its growth of 0.1 percent q/q and 0.7 percent y/y in the first quarter of 2016. CPI inflation has picked up over the past year to 16-month highs but is still remains at -0.4 percent y/y.

However, the exchange rate plays a major role in determining the direction of the central bank’s policy moves. The SNB has remained quite on its policy move following the overvaluation of the Swiss franc that has erased almost half its unwanted gains in the immediate aftermath of the de-pegging.

However, as Brexit fears have held markets this week, EUR/CHF has come down to a 5-1/2-month low of around 1.0800, and would head to 1.0500 in the event that the Britons vote to leave the EU on June 23. In such a scenario, the SNB will very likely intervene in the FX market to act against undue safe-haven CHF strength, as it has repeatedly warned of doing so.

Meanwhile, in the event of sustained downward pressure on EUR/CHF, interest rate changes would not be the SNB's first policy response, but, it would volunteer to cut rates by almost 25 basis points to -1 percent. With the lowest interest rates in the world, the central bank is understandably cautious, but is not very worried about the adverse effect of negative rates in terms of the risk of cash hoarding or Swiss bank profitability, reports said.