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11 Dec 2014
New deflation threats in Switzerland leave the SNB unmoved – ING
FXStreet (Barcelona) - Julien Manceaux of ING notes that the strong revision in SNB inflation forecast to -0.1% for next year, due to the drop in oil prices, can be taken as a sign that SNB is not yet ready to take further measures.
Key Quotes
“Today, the Swiss National Bank has met for its quarterly meeting in a context of new deflation fears and a more aggressive ECB. Indeed, the drop in oil prices observed since the end of June (-35% in CHF) is pushing further downward pressures on prices whereas Swiss inflation have been stabilized around 0% since mid-2013. The current drop in oil prices lead today to a strong revision of the SNB inflation forecasts for next year, from 0.2% to -0.1% (less negative than in 2012, -0.7%, and than in 2013, -0.2%).”
“Given the moves observed on the oil market, and even taking into account a CHF appreciation against the USD, we think that this forecast underestimates the risks of deflation and maintain our own forecast at -0.5% for Swiss inflation in 2015. The SNB inflation forecast can therefore be taken as a sign that the SNB is not yet ready to take further measures.”
“First, if the floor under the EUR/CHF is in place, it is to avoid imported deflation. Would changing the floor to depreciate the CHF further lower imported energy deflation? Probably not as oil is denominated in USD, a currency against which the CHF has already depreciated this year by 9%. This trend should continue, which will diminish the deflationary effect of lower oil prices (the Brent in USD is 40% cheaper than at the end of June).This is why the SNB has maintained the floor at 1.20 against the Euro and reaffirmed that it “stands ready to act with the utmost determination” to support it. We do not see any change in that policy before mid-2017.”
Key Quotes
“Today, the Swiss National Bank has met for its quarterly meeting in a context of new deflation fears and a more aggressive ECB. Indeed, the drop in oil prices observed since the end of June (-35% in CHF) is pushing further downward pressures on prices whereas Swiss inflation have been stabilized around 0% since mid-2013. The current drop in oil prices lead today to a strong revision of the SNB inflation forecasts for next year, from 0.2% to -0.1% (less negative than in 2012, -0.7%, and than in 2013, -0.2%).”
“Given the moves observed on the oil market, and even taking into account a CHF appreciation against the USD, we think that this forecast underestimates the risks of deflation and maintain our own forecast at -0.5% for Swiss inflation in 2015. The SNB inflation forecast can therefore be taken as a sign that the SNB is not yet ready to take further measures.”
“First, if the floor under the EUR/CHF is in place, it is to avoid imported deflation. Would changing the floor to depreciate the CHF further lower imported energy deflation? Probably not as oil is denominated in USD, a currency against which the CHF has already depreciated this year by 9%. This trend should continue, which will diminish the deflationary effect of lower oil prices (the Brent in USD is 40% cheaper than at the end of June).This is why the SNB has maintained the floor at 1.20 against the Euro and reaffirmed that it “stands ready to act with the utmost determination” to support it. We do not see any change in that policy before mid-2017.”