CHF: Policy support seen as FX intervention focus – Nomura

Nomura analyzes Swiss inflation and Swiss Franc dynamics, noting that February CPI stayed at 0.1% year-on-year, slightly above its forecast. The bank highlights that CHF strength is lowering imported prices, offsetting some energy risks. Nomura expects the SNB to prioritize FX intervention over rate cuts and to keep its policy rate at 0.00% for the foreseeable future.

SNB seen favoring FX tools over rates

"CPI inflation was unchanged at 0.1% y-o-y in February (Nomura: 0.0%, consensus: 0.0%). While low, inflation has been at this level for three months, the fact it has remained positive (against expectations) is good news for the SNB."

"The SNB’s latest forecast is for inflation to average 0.1% y-o-y across Q1, and today’s data remain in line with that. However, the impact of the conflict in the Middle East will be key for assessing future inflation prints."

"Energy prices may place upward pressure on inflation; however, Swiss consumers are less exposed to an energy price shock than their European neighbours, as energy makes up a smaller share of the CPI basket than in the euro area (5% vs. 9%), and the Swiss electricity grid draws on significant hydropower production (though imported fossil fuels are important for the industrial sector)."

"However, the current risk environment adds to the possibility of further appreciation pressures on CHF, potentially reducing import costs and thus acting as a counterforce to higher energy prices. The SNB said in a statement this week that “in view of international developments, we are increasingly prepared to intervene in the foreign exchange market”."

"We therefore view FX intervention to stem CHF strength as more likely than another cut to a negative policy rate. We expect the SNB to leave its policy rate at 0.00% for the foreseeable future."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)