SNB on hold, but fight against franc will need to continue

The Swiss National Bank’s decision to leave interest rates on hold was as expected given the recent rise in inflation. But with euro-zone political developments likely to put upward pressure on the franc, we think that the SNB will continue to intervene to prevent the currency from rising sharply. The interest rate on sight deposits was held at a record low of -0.75% and the target range for threemonth Libor was kept between -1.25% and -0.25%. The SNB also restated that the franc was “significantly overvalued” and that it will “remain active in the foreign exchange market as necessary”. Although the SNB has tolerated some appreciation of the franc since the start of the year, a sharp rise in foreign exchange reserves in February suggests that the Bank has intervened by buying foreign currency-denominated assets to prevent safe-haven flows from pushing the franc substantially higher.