Today’s statement from the SNB makes it very clear why it surprised the market by keeping rates on hold this morning. While the central bank kept the door open for another rate hike, the outlook for growth and inflation in Switzerland suggests that the central bank has likely already done enough. 

However, one obvious concern is the impact on the currency from an unexpected decision to leave rates unchanged in a month when the ECB opted to hike. To offset an inflationary drop in the value of the CHF vs. the EUR, the SNB included in the first paragraph of today’s statement the warning that it is ‘willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency’. 

Going forward, we expect the worsened growth outlook in the Eurozone will allow EUR/CHF to dip back below the 0.95 level in Q4 on safe-haven flows.