Next Thursday, the Swiss National Bank (SNB) will release its monetary policy assessment together with the policy rate. While not affected that strongly by the coronavirus pandemic like its neighbors, Switzerland saw its GDP contracting in the first quarter of the year by most since 1980.
Due to the fast response by the SNB, the economy is expected to bounce back strongly in the period ahead, providing there is no second wave in the infection rate.
Strong Economic Stimulus from the SNB to Continue
The SNB was one of the central banks that responded the fastest to the coronavirus outbreak. As one of the richest countries in the developed world, Switzerland had the resources to use – and it used them.
On the fiscal side, the Federal government quickly issued a stimulus package of more than CHF72 billion – approximately 10% of Switzerland’s GDP. On top of it, the SNB further eased the monetary policy, while keeping the policy rate well below zero.
While the economic activity during the first quarter was weak, the second quarter is expected to be worse. The lockdown affected the output, but this is hardly news by now.
When compared with peer economies, the Swiss economy is positioned to have one of the quickest and fastest economic recoveries. Some economic indicators already reveal that the worst is behind, as suggested by the PMI and the KOF leading indicators.
For the Swiss economy, what is happening in the global economy is equally important, due to the fact that its exports are a big part of the Swiss GDP. Stronger than expected global recovery will boost Swiss exports, further helping the local economic growth.
The SNB on Thursday is expected to leave the policy rate unchanged. This is a central bank that based its actions in the last years on two pillars – negative interest rate and constant FX intervention.
Together with the JPY, the CHF is viewed as a safe-haven currency, with strong demand from both institutional players and retailers. To fight the constant need for CHF from outside players, the SNB constantly intervenes in the market, to the detriment of the CHF.
Not once, the SNB was accused of being a currency manipulator due to how it chooses to conduct its monetary policy. But if we judge by the success of its actions so far, it is likely that the SNB will continue on the same path for the period ahead.