SNB lurk­ing in mar­ket af­ter franc's muted ECB re­ac­tion

The Pak Banker - - FRONT PAGE -

ZURICH: The Swiss Na­tional Bank could boost for­eign cur­rency pur­chases to pre­vent the franc from strength­en­ing af­ter the Euro­pean Cen­tral Bank (ECB) de­liv­ered a big­ger than ex­pected stim­u­lus pack­age to­day, ex­perts said.

How­ever, traders and econ­o­mists said the ECB's move to ex­pand its monthly as­set pur­chases to 80 bil­lion euros ($88 bil­lion) and cut all three of its in­ter­est rates had not height­ened pres­sure on the SNB to fol­low with its own rate cut at its quar­terly pol­icy meet­ing on March 17. The ECB's 10 ba­sis point de­posit rate cut was broadly in line with con­sen­sus, but the 20 bil­lion euro boost to its monthly stim­u­lus spend­ing came as a sur­prise. "The most likely out­look for next week is still prob­a­bly that the SNB will keep its de­posit rate un­changed at -0.75 per­cent," said Credit Suisse econ­o­mist Maxime Bot­teron.

But the ECB's in­creased as­set buy­ing could lead the SNB to step up cur­rency in­ter­ven­tion, he said. "From the SNB's per­spec­tive, the most log­i­cal re­ac­tion would be to in­ter­vene more in the for­eign ex­change mar­ket, in or­der to match the bal­ance sheet ex­pan­sion of the ECB in terms of per­cent­age of GDP," Bot­teron said. The SNB de­clined to com­ment on the ECB's pol­icy de­ci­sion. Mar­kets low­ered ex­pec­ta­tions for a fur­ther rate cut by the SNB in March fol­low­ing the ECB's pol­icy an­nounce­ment. Fu­tures con­tracts for three-month franc in­ter­est rates fell to 100.80 from 100.85 be­fore the an­nounce­ment, pric­ing in an av­er­age ex­pec­ta­tion for Swiss rates of -0.80 per­cent, just a frac­tion below the cur­rent level of the de­posit rate.

"At the end of the day, the SNB will re­act to the Swiss franc," UBS econ­o­mist Alessan­dro Bee said. "So the SNB comes un­der pres­sure if the Swiss franc ap­pre­ci­ates. As long as it's not the case, or if for­eign ex­change in­ter­ven­tions are enough (to counter the franc's ap­pre­ci­a­tion), the SNB can re­lax and con­tinue with its cur­rent LI­BOR rate." The euro fell sharply against the franc in the five min­utes fol­low­ing the ECB an­nounce­ment, from 1.0956 francs per euro at 1245 GMT to 1.0891 by 1250 GMT, but pared th­ese losses by 1315 GMT and then sharply over­took the morn­ing's rates in the fol­low­ing hour.

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