SNB stands firm despite CHF strength and tariff risks

Highlights: The Swiss National Bank (SNB) left the policy rate at zero, warned on the implications of US tariffs on growth but downplayed risks for the broader economy, and the effect of ongoing CHF strength on domestic inflation outlook. We expect rates to remain at zero for the foreseeable future as the bar to cut rates into negative territory is too high. We keep a neutral view on USD/CHF, bullish EUR/CHF and maintain a mild underweight on Swiss equities.

• The SNB kept interest rates unchanged, as widely anticipated by markets. Chairman Schlegel reaffirmed the SNB is still “prepared to cut further if required,” but the bar to intervene remains high, as negative interest rates could have unintended consequences for the financial sector and savers. Since its last meeting in June, the US has imposed 39 per cent tariffs on Swiss exports, and while certain sectors will be particularly impacted, the SNB estimates a large part of the domestic economy will not. As such, growth is expected between 1.0-1.5 per cent this year and next, while inflation is forecasted to stay well within the range of price stability
• We expect the SNB to remain on hold at zero policy rates for the foreseeable future, as the bar to cut rates into negative territory is too high. While we can’t rule out the potential of currency intervention, recent data suggest the SNB would likely avoid it, and any CHF depreciation would come from the current account balance amid weaker exports
• With today’s decision widely anticipated and the SNB guidance little changed, market reaction was muted. CHF extended a mild intraday weakening against EUR and USD, and Swiss equities slid 0.5 per cent along with their European peers in echo of fresh US restrictions on imported medical devices
• CHF continued to strengthen against USD to decade-high levels, capitalising on the broader dollar weakness, and against EUR during the recent political uncertainty. We are neutral on USD/CHF but bullish on EUR/CHF as EUR could remain the main beneficiary of global investor diversification flows. We have a mild underweight positioning for the defensive Swiss equities which continue to lag against their European and global peers amid tariff and confidence headwinds