SNB tough talk to support CHF – MUFG

Economists at MUFG Bank analyze CHF outlook.

SNB continues to favour stronger CHF

The rhetoric of the SNB is indicative of ongoing concerns over price stability. The hawkish rhetoric from the SNB looks to us to be in part an attempt to ensure there is no perception of divergence that could fuel CHF weakness. 

Another 25 bps rate hike in September seems more likely than not at this stage. Another rate hike with core CPI unchanged at the current level (1.9%) or lower would take the SNB’s policy rate in real terms into positive territory – joining the RBNZ, the Fed and the BoC. 

The SNB lowered its forecast for inflation this year from 2.6% to 2.2% but raised the 2024 and 2025 forecasts by 0.2ppt and 0.1ppt to 2.2% and 2.1%. This underlines the SNB’s bias to tighten further which will help support CHF. 

Given our view of EUR/USD moving modestly higher and the ECB hiking in July and September, the scope for EUR/CHF to move higher will be relatively limited over the forecast period.  

EUR/CHF – Q3 2023 0.9750 Q4 2023 0.9850 Q3 2024 1.0100 Q2 2024 1.0000

USD/CHF – Q3 2023 0.8860 Q4 2023 0.8790 Q3 2024 0.8940 Q2 2024 0.9090