📝SNB's Options to Address CHF Strength Seem Limited: ING

The SNB will be forced to take rates negative again when it next meets for a policy decision in September. Some think that a hot property market could slow the SNB’s hand here, but if our eurozone team is right in their call that the European Central Bank (ECB) will be cutting to 1.75% in September, it looks like the SNB will have to act. Markets are currently pricing a 25% chance of an SNB rate cut – but are equally underpricing the risks of a 25bp ECB rate cut in September too.

One tweak – perhaps before September – that the SNB could make to rates is the following: it could increase the current 0.25% charge on CHF sight deposits held above the ‘threshold’. Currently sight deposits earn the policy rate – now 0.00% - up to the threshold (18 times Minimum Reserves) and then are charged 25bp on deposits over that.

That could easily be increased to a 0.50bp charge if pressure on the Swiss franc were to intensify. That could be an interesting proposition, say, were the SNB to have bought a lot of FX and left the local banking system with much higher sight deposits – as it did during a large bout of intervention in 2020. - ING Markets Research