SNB Keeps Rates Steady, Maintains Tolerance for Stronger Franc

The Swiss National Bank (SNB) has kept its policy rate unchanged at 0%, and removed its earlier reference to an 'increased willingness' to intervene in FX markets, signaling more tolerance for a firmer Swiss Franc but not a hawkish shift.

This move suggests that the SNB is comfortable with the current inflation level, which remains within its target range of 0-2%. The bank notes that inflation has risen mainly due to oil-related costs, and underlying medium-term inflation pressures have increased only slightly.

Despite this, OCBC strategists Sim Moh Siong and Christopher Wong do not believe that the SNB will validate the market's relatively hawkish pricing. They expect rates to remain unchanged well into 2027, while OIS markets continue to price a meaningful probability of a rate hike as early as December.

The CHF is likely to retain its role as a low-yield funding currency over the coming months due to these factors. While risks to CHF funding remain, particularly from a sharp rebound in gold prices or a material deterioration in the European growth outlook, neither appears especially imminent.