The SNB is in an enviable position going into today's policy decision

It is not often these days that central banks can find themselves in a position to ease monetary policy and yet markets are expecting them not to do so. That is the predicament the SNB finds itself in going into today's policy decision.

 

There are good reasons to not expect a further rate cut today by the SNB but all you need is one reason to cut and that is certainly good enough on any day.

 

More often than not, central bank rate cuts fail to have a profound effect on markets because they get priced in (almost fully) going into any decision. So, this puts the SNB in an enviable spot where they can "get ahead" of the market and set the tone moving forward.

 

But will they do so? Let's take a look at both sides of the argument.

 

1. The franc hasn't significantly strengthened even though the ECB has introduced a stimulus package last week with EUR/CHF ~1.10 currently
2. Sight deposits data over the past 2-3 weeks suggests limited market intervention is needed as the franc hasn't strengthened too much
3. Is it better to save ammunition for a rainy day? With rates already deep in negative territory, it may be prudent to hold off until more stimulus is actually needed rather than to act prematurely

1. It is not often that central banks have the ability to surprise markets these days and this could be one of the few opportunities for the SNB to get ahead of the curve
2. Prevention better than cure? Given global macro trends, it is likely a matter of time before the SNB has to step in so they could just throw a curve ball to markets today and hope that markets will drive the franc lower in the aftermath

 

I reckon the need for the SNB to keep their powder dry may just tilt the decision towards keeping its policy rate steady today. However, one shouldn't be caught too off-guard if they do decide to cut their policy rate today given the circumstances above.