Swiss Franc Set to Move on Interest Rate Decision

Weekly Update

Markets are signaling that the SNB will hold the target 3-Month Libor rate at 0.25% when it releases its monetary policy assessment on June 17th. This is a significant reversal from last week when markets were hinting at a cut. In any event, rates are effectively zero, with the posted 3-Month Libor rate at 0.09% currently. Exchange rate intervention will remain the SNB’s primary policy tool in the near-future. As stated in the March assessment, “Since the SNB no longer has any room for manoeuvre, the SNB has been intervening in the foreign exchange market. In doing so, it is aiming to act decisively to counter an excessive appreciation of the Swiss franc against the euro, since an appreciation of this kind would result in an undesired tightening of monetary conditions.”

Weekly Update

The past week featured more of the same, as Fed officials expressed confidence in the U.S. economic recovery, while acknowledging that the path to recovery remains bumpy. Most officials do not see the situation in Europe derailing the U.S. recovery. According to Chicago Fed President Evans, the crisis in Europe was not having a “big effect” on the U.S. so far. He went on to say that he doesn’t “see any hurry” to raise interest rates. Looking toward the longer-term, Chairman Bernanke said that in the next three to six years, the U.S. itself will have to control government debt. Overnight index swaps are suggesting 35 basis points of Fed funds rate increases over the next twelve months, down from 50 basis points last week.

Weekly Update

On June 10th, the ECB kept its benchmark interest rate steady at 1.00%. President Jean-Claude Trichet said in his statement that current rates remain “appropriate” and that domestic price pressures are expected to remain low. The bank also expects that the euro area economy will grow at a moderate pace, but in an environment of “continued tensions in some financial market segments.” Interestingly, Trichet said that “the risks to the economic outlook are broadly balanced,” with global economic robustness offsetting concerns over sovereign debt. Markets are indicating 33 basis points of hikes from the ECB over the next twelve months, up from 24 basis points a week ago.




Weekly Update

The Bank of England maintained the benchmark Bank Rate at 0.50% on June 10th. Over the past week, BOE policy makers kept their comments focused on inflation, which is still uncomfortably above the 2% target. The May consumer price index was up 3.4% year-over-year, down from 3.7% in April. BOE Chief Economist Spencer Dale opined that the inflation jump is “temporary” and “likely to moderate.” Markets expect 32 basis points of rate hikes over the next twelve months, up from 26 basis points in the prior week.




Weekly Update

In the minutes to the June 1st meeting, the RBA noted that interest rates were at a level that was around the average of the past decade or so. The minutes indicated that because of the significant tightening that had already occurred, the central bank now had “the flexibility to await information on how the recent market uncertainty might affect the global economy, as well as news about the outlook for inflation.” Moreover, the RBA judged that it was appropriate to leave the cash rate unchanged “for the near-term.” Overnight index swaps suggest 28 basis points of hikes out of the RBA over the next twelve months, up from 14 basis points a week ago.




Weekly Update

BOC Governor Mark Carney remarked that it is too soon to know the impact of the European situation on Canada. Markets are indicating that the BOC will hike rates 25 basis points in the July 20th meeting, and 129 basis points over the next twelve months (down from 150 basis points last week).




Weekly Update

The Reserve Bank of New Zealand hiked its official cash rate by 25 basis points on June 10th. The rate now stands at 2.75%. In a statement explaining the action, Governor Alan Bollard said that main impact on New Zealand from the recent financial market turmoil would “come through continuing upward pressure on the cost of funds to the banking system.” The RBNZ expects growth of around 3.5% in New Zealand this year and next and for inflation to track “within the target range,” though the figure may increase temporarily due to government-related price changes. Further rate hikes will be reviewed “in light of economic and financial market developments.” Overnight index swaps suggest that the RBNZ will hike rates at the next policy meeting on July 28th and 144 basis points over the next twelve months (down from 161 basis points last week).




Weekly Update

As expected, the Bank of Japan held the target overnight interest rate at 0.1%, following the June 15th board meeting. Though optimistic about the economic recovery, the bank “recognizes that Japan’s economy faces the critical challenge of overcoming deflation…” To this end, the BOJ introduced a long-term collateralized lending program set to begin by the end of August, 2010. The central bank will lend a maximum of 3 trillion yen under this program. Markets are expecting no rate hikes from the BOJ over the next twelve months.



For a summary of past rate decisions, see our Central Bank Interest Rate Outlook

Written by: Sumit Roy, DailyFX Research
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