SNB May Not Cut Rates in Response to ECB Easing, Credit Suisse Says

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The Swiss National Bank may choose to forgo an interest rate cut in the event of more euro-area stimulus and instead resort to interventions to offset the franc’s rise, according to Credit Suisse Group AG.

Should the European Central Bank lower its policy rate by 10 basis points and launch an asset purchase program of 30 billion euros per month on Sept. 12, as some expect, “we believe that the SNB could respond to appreciation pressures on the franc through foreign exchange interventions rather than lowering its policy rate,” economist Maxime Botteron wrote in a note to clients.

Coupled with a pledge to enact wage interventions if needed, the SNB is using an ultra-low deposit rate of -0.75% to keep the franc from appreciating. Yet a barrage of new ECB stimulus could add to the franc’s upward momentum after it touched a two-year high against the euro this week amid concerns about global trade wars and Brexit.

In fact, it was the onset of euro-area quantitative easing that prompted the SNB to take the deposit rate to its current low in early 2015.

The SNB’s policy announcement is due on Sept. 19, a week after the ECB’s.

Referring to the SNB’s past rate cuts, Credit Suisse said it was generally skeptical of the central bank’s ability to weaken the franc via lower interest rates.

“Lowering the policy rate when the franc is under strong appreciation pressure is not very effective, even more so if it is done during a scheduled meeting,” Botteron said. “If history is any guide, we think that -- should the SNB nevertheless opt for an interest rate cut -- the SNB should at least try to benefit from the surprise effect and lower its policy rate between scheduled meetings.”

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