Bloomberg

(Bloomberg) -- The Swiss National Bank is ready for Brexit, or whatever shocks the world throws at it. 

While Thomas Jordan and his colleagues have kept policy unchanged since January 2015 -- relying on pledges of intervention and possible further rate cuts -- that doesn’t mean they won’t make good on those threats if the franc strengthens again, according to economists in Bloomberg’s monthly survey.

Global markets face political uncertainty in coming months, with the U.K. voting on whether to leave the European Union, Spain set to hold general elections for the second time in half a year and Greece attempting to pass its latest bailout review. Combined with the potential for further European Central Bank easing, this could cause a rally of the franc, sought by investors at times of market stress.

Switzerland’s central bank can expand its balance sheet to 150 percent of gross domestic product via currency interventions, from roughly 100 percent currently, before its credibility gets called into question, according to the median of 17 estimates in the survey conducted May 6 to May 12. That means the SNB’s balance sheet can increase by more than 300 billion francs ($307 billion).

“The appreciation pressure on the franc might increase soon again with several political risk events coming up like the British EU referendum, the general election in Spain or potentially renewed discussions on Greece’s debt,” said Markus Schmieder, an economist at Wellershoff & Partners in Zurich.

Although the Swiss currency has weakened 1.7 percent against the euro since the start of the year, it is still markedly stronger than the 1.20 level the SNB enforced via a minimum exchange rate until early 2015. SNB President Jordan has repeatedly said the franc remains “significantly overvalued.” It traded at 1.10704 on Tuesday.

“The most likely scenario is the continuation of SNB monetary policy among two pillars, negative interest rates and discrete foreign exchange interventions,” said Gero Jung of Mirabaud Asset Management. “As the ECB is likely to turn more dovish in the second half of the year, the SNB might also reinforce its action among those two intervention tools.”

As for the deposit rate, already at a record low of minus 0.75 percent, the SNB has the leeway to go as far as minus 1.25 percent before investors begin to hoard cash, the survey found. So far, Swiss policy makers have said repeatedly they see no indication of a building up of cash positions to circumvent the negative deposit rate. Swiss Libor futures suggest a 24 percent chance of a 25 basis point cut by September.

“Policy rates in Switzerland do not seem to have reached the effective lower bound yet -- but still-lower rates would exacerbate the trend toward hoarding cash,” said UBS Group AG economists Alessandro Bee and Dominik Studer. “So our base case remains that the SNB will leave the negative rates where they are but try to reverse them as soon as possible.”

--With assistance from Richard Jones To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net, Andre Tartar in New York at atartar@bloomberg.net. To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Joshua Robinson at jrobinson37@bloomberg.net, Zoe Schneeweiss

©2016 Bloomberg L.P.

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