SNB Must Be in Market ‘Right Now’ to Weaken Franc, Junius Says

(Bloomberg) — The Swiss National Bank is very likely to be intervening in currency markets to curb the franc’s strength, according to Karsten Junius, chief economist at Bank J Safra Sarasin.

Junius estimates that the franc is at the moment 6% overvalued, but highlighted that “it’s not only the level of the overvaluation but also the speed of the appreciation that should worry the SNB.”

Franc sales are probably “happening right now,” he added. “They intervened verbally. To keep their credibility they now need to follow up with actions.”

The SNB declined to comment.

The Swiss currency has risen more than 3% against the euro since the beginning of the year, getting a further boost from the US-Israeli strikes on Iran. Such gains hurt exporters and weigh on inflation, which is already close to zero, prompting the central bank to issue a rare unsolicited threat of market intervention last week.

Junius said he is “surprised” that the franc temporarily strengthened below 90 centimes per euro — the highest since 2015 — on Monday, “because I thought the SNB wanted to prevent that.”

Still, he doesn’t expect negative interest rates to be introduced, as he sees currency interventions as the more appropriate tool at the moment. If policymakers should opt for subzero borrowing costs, they would be introduced in a forceful step, Junius predicted.

“If at all, we would see a half-point cut to -0.5%,” he said. “Such a move would be to head off flows into the franc, so a clear signal would be needed. A 25 basis-point step would just evaporate on markets.”

SNB officials gather next week for their first policy meeting of the year, after they kept the benchmark unchanged at zero since June. Most economists surveyed by Bloomberg expect the March 19 decision to result in another hold, with just one out of 18 polled forecasters anticipating a rate reduction into negative territory.

–With assistance from Alice Gledhill.

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