Photo: Wikimedia Commons.
An investor note by Citi analyst Valentin Marinov concurs with our take on announcements made by the Swiss National Bank today: The SNB’s most recent moves are pretty meaningless.Marinov doubts that the SNB make any tangible changes to their policy in the immediate future, though they will probably be forced to take action in the long run as a measure of last resort.
“We think that today’s decision is an important indication that the SNB is still reluctant to intervene on the FX spot market and that investors expecting such measures in the near term could be disappointed. We maintain the view that a FX spot market intervention to keep CHF below certain target level is a measure of last resort for the SNB. We suspect that the SNB strategy remains to build a wall of supply to counteract any further escalation in the demand for Swiss franc. Today’s forward market intervention has pushed the CHF basis swap deeper into the negative territory…A comparison with previous episodes of excessive market uneasiness like in 2010 and 2008 and may suggest that the SNB has not yet fully exhausted this policy option. We continue to think that the next policy step will be to impose penalty rates on CHF-deposits. The measure will augment the impact of negative CHF implied yields on investor demand for the currency…
We certainly cannot rule out FX spot market intervention at some point in the future. We think that the SNB will resort to that measure if all other measures have failed. Even in this case, however, the SNB could face an uphill struggle dealing with the huge demand for CHF from investors looking to sell both EUR and USD. Triggering and uptrend by defending a one-sided peg could be very difficult given the elevated sovereign debt risks in the euro area. We still think that the best that the SNB could hope for at present it seems would be sto stabilise the CHF.”