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Expansionary Monetary Policy On Hold in Switzerland

The Swiss National Bank (SNB) has kept the expansionary monetary policy unchanged. One day after the FOMC meeting, the SNG is in no hurry to remove the monetary stimulus.

The SNB is one of the few major central banks in the developed world that only meets quarterly to deliver its monetary policy statement. The other central banks meet every six weeks, something that the SNB considered unnecessary.

The central bank’s Governing Board decided to leave the monetary conditions unchanged, considering that expansionary monetary policies are still needed. As such, the SNB policy rate and the interest on sight deposits at the SNB remained at -0.75%, the lowest in the advanced economies.

One may say that the SNB’s decision was a non-event, considering that its decision came one day after the Federal Reserve of the United States surprised markets with a hawkish statement. But it is such meetings that bring nothing new that confirm a trend, and sometimes all investors needed to hear is that the central bank is doing nothing.

The Swiss Franc sold on SNB decision

Unlike the inflation situation in the United States, where the annualised inflation rate exceeded 3.5% recently, projected inflation in Switzerland remains subdued for the years ahead. As such, traders interpreted the SNB’s decision as a confirmation to sell the Swiss franc, considering that the Fed is the first major central bank to start removing monetary stimulus.

Therefore, the USD/CHF exchange rate took another step higher. The pair did rise one day earlier in response to the Fed’s message and continued the bullish trend after the SNB’s decision.

How do we know that the Swiss franc reacted to the SNB’s decision? The answer comes from the EUR/CHF cross.

The pair broke out of a bullish flag on the SNB’s announcement, a clear confirmation that investors believe that the SNB is not happy with the Swiss franc’s strength during the pandemic. Because the market broke the previous lower high, the chances are that a marginal bottom is in place.

To sum up, the SNB remains the central bank in the developed world with one of the most relaxed monetary policies. While holding the interest rate at the lowest level in the developed world, it has a hard time controlling the Swiss franc’s strength in times of market turmoil.

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