SNB monetary policy to remain ultra-loose

Thomas Jordan, the SNB Chairman, held a press conference in Bern as the SNB struggles to stimulate its economy.

Its short and long-term yields are negative and while the consequences of such a monetary policy are not exactly known, the impact on banks and investors must be assessed. According to Jordan, “The cost associated with negative interest is lower than the cost of holding cash”, which we do not believe knowing that from our perspective, the cost of negative interest rate will be always higher than the cost of holding cash, especially if inflation comes back. Further decreasing interest rates may trigger a bank run or a least a flight to cash that would be damaging to the economy. Jordan also mentioned that the SNB is not willing to limit or abolish cash in order to prevent such adverse effects and other monetary tools such as helicopter money. At this point, the SNB has expanded its balance sheet to 110% of its GDP and we believe that there is still more room for further expansion, especially when looking at other countries with significantly higher debt to GDP ratio such as Japan or the United States. Downside pressures are still weighing on the EURCHF despite the SNB’s massive intervention. We naturally remain bearish on the pair. The main driver of the pair is clearly the ECB and the December meeting is highly anticipated by financial markets. Volatility should come back then knowing that the end of the European QE program looms.

Arnaud Masset, Yann Quelenn – Market Analysts – Swissquote