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Swiss National Bank will announce its monetary policy decisions at 7:30 GMT today.
Economic conditions -
- Switzerland GDP is around $ 650 billion and growth rate is moderately well at 1.10% annum.
- During 2011 European debt crisis inflation fell to -1%, however came to positive ground in 2014 gradually. However since mid of last year inflation decelerated to negative territory and hovering close to -1%.
- Bond yields are negative up to 9 years. 10 year yield has recently came back to positive territory, however remains close to zero, currently at 0.12%
- Switzerland enjoys high current account balance, 7% of GDP.
- Unemployment rate is stable close to 3.2%.
Current policy -
- SNB has kept policy rates at -0.75% and three months target range for libor at -1.25/-0.25%.
- SNB abandoned the Euro peg of 1.20 in January 2015, days before ECB announced QE.
Challenges -
- Swiss franc remained reasonably high priced and even higher after SNB scrapped the Euro peg.
- Economic activities as indicated by PMI, retail sales have slowed down considerably, since the peg was removed.
- Inflation as measured by CPI and PPI remains at worst level since 2009 crisis.
- Stronger Franc against Euro is likely to weigh on trade balance in future.
- Slowdown in China is hurting Swiss luxury exports.
Expectation today -
Expectation is that Swiss bank will hold monetary policy steady.
- Swiss bank's credibility is at risk, if SNB fails to take action to curb the deflationary environment.
- Moreover action by SNB might to weaken the Franc, which is highly recommended for economic activities.
Franc is currently trading at 0.922 against dollar. Policy decision might turn out as non-event if SNB fails to take action today.
