PAUL MACKEL : Thoughts on the SNB rate decision – My view is that the SNB will raise it to 1.25 but not 1.30. I’m in the consensus. I don’t think the SNB needs to raise it to 1.30 just yet. Why doesn’t the SNB just keep jawboning the CHF lower and let the market do the work for it? Also, we know the SNB can raise the floor anytime. So, the case can be made to keep the powder dry should external conditions get materially worse. But raising the floor will only increase the cost of maintaining it for the SNB. So far, the SNB appears to have got off fairly lightly by establishing the 1.20 floor. The FX reserve growth has not exploded (actually fallen with expiry of FX swaps etc.) and the market seems more willing to go with the SNB. However, the higher the SNB pushes EUR-CHF the more challenges it will present the central bank to maintain it. If the SNB surprises by keeping the floor at 1.20 today, spot should collapse. Keeping the floor steady at 1.20 would be a bigger surprise than raising it to 1.25 or 1.30.
HSBC Global Research