BUZZ-COMMENT-SNB's dovish surprise heightens CHF funding appeal

Credit: REUTERS/Denis Balibouse

March 21 (Reuters) - The Swiss National Bank has kicked off the G10 easing cycle having cut its key policy rate by 25bps to 1.50%. While this had been a surprise relative to expectations, the significant undershoot in inflation relative to the bank’s projections more than justified a cut today.

With headline and core CPI notably below the SNB’s 2% upper band of the target range at 1.2% and 1.1% respectively, the bank now projects a much lower inflation path compared to December, as shown in the chart below. SNB Chairman Thomas Jordan also noted that he sees lower second round inflationary effects, which in effect paves the way for additional rate cuts.

In recent months, services CPI – currently standing at 1.8% – has been the primary driver of inflation. Given that it is typically slower to ease relative to goods inflation, there is room for inflation to head lower. Thus, raising the risk that inflation undershoots the SNB’s inflation outlook yet again.

For the Swiss franc, sensitivity to incoming data will be heightened. Meanwhile, the currency may become the preferred funding currency over the yen as policy converges .

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SNB old vs new CPI forecast

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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