SNB to shift through the gears

The pick-up in FX interventions by the Swiss National Bank (SNB) in recent weeks is likely to be the first step towards a rate cut. But predicting when the interventions will be dialled down and the policy rate will be cut is more art than science. It’s worth noting that the interventions that the SNB has made so far have been fairly small, including by the standards of the Bank’s previous efforts since 2012 as well as in the context of the average daily turnover of EUR/CHF trading of around CHF 43 billion. Moreover, judging from the experience in early-2017, the SNB has in the past tolerated making similar-sized interventions to what it has done in recent weeks for months on end without cutting. As a result, so long as the franc remains close to our end-year forecast of CHF 1.08, we would still expect to see a rate cut in Q1 next year. However, given the speed and extent of recent market moves, particularly in the bond market, the balance of risks is clearly skewed towards policymakers cutting rates sooner rather than later.