Pressure on the SNB to Cut Hasn’t Been This High in Years

(Bloomberg) --

Swiss National Bank logic would dictate that it’s time to cut interest rates.

With markets in a tailspin due to the coronavirus, the spread between Swiss and German bond yields that SNB President Thomas Jordan has repeatedly cited as necessary to prevent the franc from appreciating has melted away.

The yield on German 10-year government bonds plunged to a historic low of -0.86% on Monday, reducing the gap with their Swiss counterparts to less than 10 basis points.

Bets are on for a European Central Bank interest rate cut this week, following on from the emergency half-point reduction unleashed by the Federal Reserve.

That could necessitate an SNB response, after the franc broke through the 1.06 per euro mark and hit its strongest since 2015. The amount of cash commercial banks hold with the central bank rose last week, indicating the SNB may have intervened to limit the franc’s rise.

A spokeswoman for the SNB declined to comment on the sight deposit statistics and on the shrinking bond spreads.

It was five years ago that Jordan and his colleagues got rid of its 1.20 per euro cap on the franc and cut its deposit rate to its current -0.75%, saying it needed to maintain the rate differential with the euro area in the run-up to quantitative easing.

The SNB’s next rate decision is scheduled for March 19, though it has a history of acting on an ad-hoc basis. Speaking at an event in Zurich on March 3, Governing Board Member Andrea Maechler said the SNB didn’t feel under fire.

“The SNB is never under pressure” to act, she said. “We have a very clear mandate, which is to maintain price stability, and with this in mind we will make our decision.”

To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net;Richard Jones in Berlin at rjones207@bloomberg.net

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss, David Goodman

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