HiFX comments on SNB’s overnight interest rate cut
Andy Scott, spokesperson for FX advisory services at foreign currency specialists, HiFX, comments on Switzerland’s interest rate cut.
Andy said: “Faced with a franc that’s remained strong against its major counterparts since the first signs of the sovereign debt crisis in the Eurozone emerged in 2011, the Swiss National Bank surprised markets on Thursday morning by taking another step to prevent its currency from strengthening. They cut interest rates to -0.25% on sight deposit account balances of over 10 million Swiss francs, meaning there’s now a cost to hold them, and also expanded its target lending range from -0.75% to 0.25%. Its stated intention is to ‘make it less attractive to hold Swiss franc investments’ which are once again attracting flows of investors’ money due to the recent jump in volatility across various asset classes – sparked predominantly by the collapse of global oil prices.
“Having seen the franc trading at, or very close to, the cap that it set of 1.20 to the euro over the past month, the SNB obviously felt it needed to shore up its defences against a building storm surge of money looking for a safe home. It is also faced with the potential for Q.E. by the ECB next year, which would likely put further downwards pressure on the euro across the board. Finally, Switzerland continues to face the risk of deflation as highlighted by the SNB at their last meeting, with the strength of the franc a key contributor to annual CPI running at just -0.1% in November.
“Having initially jumped to 1.2095, its highest since the middle of October, EUR/CHF was already heading back towards the 1.20 floor and at the time of writing this piece, was dealing at 1.2040. The SNB looks like it will have its work cut out to prevent the Franc from strengthening in the current environment.”
