No surprises in the Swiss National Bank policy

The euro remains at the bottom of its trading range of 1.1600–1.2000 against the dollar in which it has been moving since July 23. The greenback is buoyed by encouraging comments from the Fed and by a resurgence of the COVID-19 pandemic in Europe, particularly in France and Spain. Fed Chair Jerome Powell believes that the US economy had been resilient during the coronavirus crisis while Charles Evans said it had regained 90% of its pre-pandemic level. He also added that the US central bank could raise its key interest rates before the 2% inflation target is reached. The euro, on the other hand, is under pressure, particularly by fears about a new wave of coronavirus in Europe. The European Union has called on its member states to toughen their measures as new outbreaks of cases emerge. ECB President Christine Lagarde said the recovery remained uncertain and uneven. She reiterated her remarks about a strong euro, its impact on inflation and the recovery of the economy. Bank of Italy Governor and ECB board member Ignazio Visco said the recent rise in the single currency was worrying as it was putting pressure on the evolution of prices and could lead the central bank to intervene in the markets. Europe’s economic and health situation is now encouraging analysts to consider a further cut in the key rate by the ECB. The market is no longer convinced that –0.50% is a floor for the central bank. And even a further decline of 0.10% or less is weighing on the single currency because if that happens there is no guarantee that it will be the last.

At its quarterly monetary policy meeting, the Swiss National Bank held its benchmark rate steady at –0.75% as expected. It also reiterated its desire to maintain an expansive monetary policy with negative rates to counter any upward pressure on the franc…which it nevertheless still considers ‘highly valued’. On the other hand, it fleshed out its discourse by talking about the interventions. The institution says it is now ‘willing to intervene more strongly in the foreign exchange market’ if necessary. These words particularly attracted the attention of analysts when recently rumours suggested that the US government might be placing Switzerland on its currency manipulators blacklist. Chairman Thomas Jordan said at the press conference that the institution will communicate more clearly and more frequently on its interventions in the foreign exchange market. A decision which he said responds ‘to an increasing interest in its (the SNB’s) very specific monetary policy strategy’. From now on, the volume of interventions for the quarter will be published at the end of each following quarter. Concretely, today was the first time the SNB published the amount it had to use to counter the rise of the franc: interventions amount to 90 billion Swiss francs over the first six months of 2020. However, the SNB will not go so far as to imitate the Fed and the ECB by publishing the minutes of its monetary policy meetings. These are minutes in which we discover the intensity of disagreements on a decision or the position of each of the governors on a particular subject. Mr Jordan justified the bank’s beginning to open up in a recent IMF report which published a guide to transparency for central banks.

The Central Bank of Turkey surprised the markets last Thursday by raising its key rate by 200 points for the first time in two years. The latter has thus gone from 8.25% to 10.25%. The main rate had reached 24% in September 2018 when the central bank raised it by 625 basis points to stem the fall of the lira and fight record inflation. It had been brought back below 10% following a series of cuts decided by the institution under pressure from President Recep Tayyip Erdogan who continues to express his opposition to the high rates. Faced with the collapse of the lira, which has been going from historic low to historic low against the dollar, and against the wishes of the President, the Central Bank, faced with pressure from the market, had no other choice than raising the rates in an attempt to stabilise the currency.

As expected, the Bank of Norway kept its key rate unchanged at 0%. This is a historically low level at which it should remain ‘for a good while’, according to statements. The institution has slightly revised its forecast for this year. The country’s growth is expected to decline to –3.60% from –3.50% previously. Analysts are now banking on a possible first rate hike only at the end of 2022.

Lastly, the Central Bank of Mexico lowered its interest rates for the eleventh time in a row to bring it down by 0.25% to 4.25%.