A busy month for central banks

The three major Nordic and Swiss central banks met in December and provided very different messages about the outlook for monetary policy in their respective countries. First, the Swiss National Bank (SNB) left policy unchanged and, despite the franc’s depreciation in the months running up to the meeting, repeated its judgement that the currency is “highly valued”. Accordingly, it reiterated that it would intervene in the foreign exchange markets, if necessary. As it happens, with central banks in other major economies moving towards “normalising” monetary policy, we think that pressure on the franc is more likely to ease than build. So we think that, in general, exchange rate intervention will be minimal and interest rates will remain very low for a long time. A few hours after the SNB announcement, the Norges Bank also announced that policy would be unchanged. But it changed its interest rate forecast, pencilling in much earlier increases in interest rates. While we think that subdued inflationary pressure will allow the Bank to keep policy loose for longer than it currently anticipates, we have revised our interest rate forecast, pencilling in two ten basis point hikes in the second half of next year.