SNB: Questioning the Continued Appreciation of the Swiss Franc
2023-10-18
■ Affected by signs of economic slowdown and weakened inflationary pressure, SNB’s view of suspending interest rate hikes remains firm.
■ Due to geopolitical risks caused by the situation in the Middle East, the appreciation of the Swiss franc continues, but whether it will be hindered by the general election remains a concern.
Since October 7th, starting from the military conflict between the Islamic organization Hamas and Israel, the Swiss franc (CHF) has risen to its highest level against the euro since September 2022 and has also experienced a temporary increase of over 2% against the US dollar and Japanese yen. Against the backdrop of the worsening humanitarian crisis, the demand for safe assets has driven the rise of the Swiss franc. Afterward, leaders from the United States and Europe stated that they would visit Israel and begin resolving the issue. In addition, Russian President Putin held telephone consultations with leaders of Middle Eastern countries, calling for an immediate ceasefire. Therefore, the appreciation momentum of the Swiss franc is gradually weakening. In the past, a ceasefire was achieved through the mediation of Egypt and Qatar, and people will closely monitor whether there will be early diplomatic progress.
Switzerland's real gross domestic product (GDP) remained flat month-on-month in the second quarter. Personal consumption and government spending have maintained growth, but due to the decline in global demand and the appreciation of the Swiss franc, investment in equipment and construction has been weak. The Swiss National Bank (SNB) maintained its policy interest rate at 1.75% at its meeting on September 21st. Although this is the first maintenance since March 2022, SNB President Jordan stated that "in order to achieve medium-term price stability, it cannot be denied that further financial tightening may be necessary" and stated that he will closely monitor price trends in the coming months. Although the Consumer Price Index (CPI) in September increased by 1.7% year-on-year, slightly higher than the 1.6% increase in the previous month, the inflation trend has continued to weaken since February (the same as 3.4%) and remains within the SNB target range of 0-2%. Given the weakening of inflationary pressure and the economic trend, policy interest rates remain unchanged.
In the short-term financial market, the market expects the policy interest rate to remain at 1.75% at the meeting on December 14th, with a probability of about 95%. People will pay attention to the third quarter GDP and CPI data released on December 1st and 4th. However, the likelihood of an economic recession is relatively low, and the mainstream market view is that the economy will gradually recover in the second half of 2024. The current focus of attention is on the quadrennial general election to be held on the 22nd. Regarding immigration issues, if the support base of populist political parties expands, it may increase uncertainty about the economic outlook and hinder the appreciation of the Swiss franc.
■ Due to geopolitical risks caused by the situation in the Middle East, the appreciation of the Swiss franc continues, but whether it will be hindered by the general election remains a concern.
Since October 7th, starting from the military conflict between the Islamic organization Hamas and Israel, the Swiss franc (CHF) has risen to its highest level against the euro since September 2022 and has also experienced a temporary increase of over 2% against the US dollar and Japanese yen. Against the backdrop of the worsening humanitarian crisis, the demand for safe assets has driven the rise of the Swiss franc. Afterward, leaders from the United States and Europe stated that they would visit Israel and begin resolving the issue. In addition, Russian President Putin held telephone consultations with leaders of Middle Eastern countries, calling for an immediate ceasefire. Therefore, the appreciation momentum of the Swiss franc is gradually weakening. In the past, a ceasefire was achieved through the mediation of Egypt and Qatar, and people will closely monitor whether there will be early diplomatic progress.
Switzerland's real gross domestic product (GDP) remained flat month-on-month in the second quarter. Personal consumption and government spending have maintained growth, but due to the decline in global demand and the appreciation of the Swiss franc, investment in equipment and construction has been weak. The Swiss National Bank (SNB) maintained its policy interest rate at 1.75% at its meeting on September 21st. Although this is the first maintenance since March 2022, SNB President Jordan stated that "in order to achieve medium-term price stability, it cannot be denied that further financial tightening may be necessary" and stated that he will closely monitor price trends in the coming months. Although the Consumer Price Index (CPI) in September increased by 1.7% year-on-year, slightly higher than the 1.6% increase in the previous month, the inflation trend has continued to weaken since February (the same as 3.4%) and remains within the SNB target range of 0-2%. Given the weakening of inflationary pressure and the economic trend, policy interest rates remain unchanged.
In the short-term financial market, the market expects the policy interest rate to remain at 1.75% at the meeting on December 14th, with a probability of about 95%. People will pay attention to the third quarter GDP and CPI data released on December 1st and 4th. However, the likelihood of an economic recession is relatively low, and the mainstream market view is that the economy will gradually recover in the second half of 2024. The current focus of attention is on the quadrennial general election to be held on the 22nd. Regarding immigration issues, if the support base of populist political parties expands, it may increase uncertainty about the economic outlook and hinder the appreciation of the Swiss franc.