Date: 15 Mar 2018

“It is very clear to us that short term interest rates, the ones that are controlled by the central bank, will remain at very low levels, far beyond the horizon of our asset purchases,” said European Central Bank (ECB) board member Benoit Coeure on Monday. Coeure’s comment, coming just days after the ECB had dropped its pledge to increase its bond buying if needed, was a timely reminder to markets that the ECB is in no rush even if it is minded to slowly wean the euro zone off any dependency on its well-established programme of monetary stimulus. Coeure’s words may also have resonated in Switzerland where the Swiss National Bank (SNB) is holding its quarterly monetary policy meeting on Thursday.

The SNB will not wish the market to think that Swiss monetary policy settings could get ahead of those of the ECB when it comes to ultra-accommodative monetary policy withdrawal. The SNB will not wish to help foster any such market perception lest that should re-ignite a demand for the Swiss franc (EURCHF) that the SNB would dearly wish to avoid given the fact that year-on-year Swiss CPI is still only running at around 0.6 per cent. The SNB could reinforce its continuing ultra-accommodative message by cutting its own CPI forecasts as it is still currently forecasting Swiss CPI at above 2 per cent for 2020. Traders may wish to keep an eye on the details of the SNB decision.

Written by Neal Kimberley, External Currency Analyst.