Tue, Mar 17, 2015 - Page 15 News List

SNB to deliver its outlook after currency shock


Swiss National Bank (SNB) Chairman Thomas Jordan is about to reveal the damage from Switzerland’s biggest single-day currency shock this century.

Two months after the Swiss central bank abolished its cap on the franc, its officials are preparing their first economic forecasts to assess the impact of that move. Jordan is to give that outlook on Thursday at a policy assessment, with economists predicting that the bank will keep its negative deposit rate at a record low.

“The strong appreciation of the franc after the cap was given up should significantly hit the Swiss economy,” Stuttgart, Germany-based LBBW economist Martin Gueth said. “We expect the SNB to remain in a wait-and-see mode, but should the franc appreciate, it will wage fresh currency interventions or even cut rates again.”

The decision on Thursday is to give the three-member SNB board an opportunity to jointly address the public after the denouement of the franc ceiling of 1.20 per euro on Jan. 15, a shock described as a “tsunami” by Swatch Group AG CEO Nicolas Hayek. SNB policymakers are to hold a press conference in Zurich, breaking normal practice that would dictate waiting until June for the next such encounter.

Bank officials are expected to keep the deposit rate at minus-0.75 percent, according to 21 of 26 economists in Bloomberg’s monthly economic survey. The rest say the SNB will intensify the charge.

Policymakers are also seen holding the target range for three-month Libor at between minus-1.25 percent and minus-0.25 percent.

When the SNB gave up its cap on the franc, it surged more than 15 percent against more than 150 counterparts tracked by Bloomberg, triggering losses at some financial firms and increasing the likelihood of rising joblessness and an economic downturn in a country that emerged from the financial crisis less bruised than many of its European neighbors.

Jordan has already warned there might be “one or the other” quarter of economic contraction. The prior forecast for growth of about 2 percent this year, issued in December when the cap was still in place, will not be met, he said.

The three governing board members “probably feel obliged to explain their decision in January to lift the ceiling,” Brussels-based ING Group NV senior economist Julien Manceaux said. “There’s been a lot of criticism, including at a political level.”

The economy is expected to expand 0.8 percent this year, with consumer prices tumbling 1 percent, according to a separate Bloomberg survey. Inflation is expected to pick up to 0.1 percent next year and 0.4 percent in 2017.

Fifteen of 20 economists do not expect the SNB to cut its deposit rate further this year.

“The franc’s value will be the most important consideration taken by the SNB, regarding its policy vis-a-vis the deposit rate,” Bernard Yaros of Moody’s Analytics said. “If the franc appreciates above current levels, getting dangerously close to parity with the euro or even breaking it, that would trigger a further cut to the deposit rate later this year.”

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