ZURICH (Reuters) - The Swiss National Bank will keep its ultra-loose monetary policy on hold on Thursday ahead of elections across Europe that could boost anti-establishment parties and fuel demand for safe-haven Swiss francs, a Reuters poll found.
Negative interest rates and currency interventions are set to remain the SNB’s main tools in its campaign to put the brakes on the franc, which it has consistently described as “significantly overvalued”.
With next month’s election in France driving investor demand for francs, analysts think the SNB will stick to the policy it has employed for the last two years. Anti-EU candidate Marine Le Pen leads opinion polls for the election’s first round but is not expected to win the French presidency.
All 41 analysts polled by Reuters expect the SNB to hold its target rate for three-month Swiss franc Libor, used a benchmark for lending rates, at -1.25 percent to -0.25 percent for the ninth consecutive quarterly assessment.
They also expect the Bank to keep its interest rate for sight deposits frozen at -0.75 percent, a policy designed to weaken investor appetite for the franc.
The SNB introduced negative rates in January 2015 when it scrapped a long-standing cap on the franc’s exchange rate of 1.20 versus the euro, a move which sent the franc soaring against the single currency.
“The upcoming French elections are a factor that cannot be ignored,” said Ursina Kubli, a currency strategist at J.Safra Sarasin. “After last year’s results, it would be unwise to ignore the risks of these upcoming votes, and that is what is driving demand for francs and making the SNB nervous.”
SNB Chairman Thomas Jordan said in a recent interview the central bank remained committed to an expansive monetary policy, citing increased political risks across Europe.
Analysts polled by Reuters expect the SNB not to raise its interest rates until the second quarter of 2018 at the earliest, the end of the forecast horizon. Just one - J. Safra Sarasin - expects the central bank to cut rates by another 25 basis points in the first half of 2017.
The SNB has been increasingly active in foreign exchange markets in recent weeks, with sight deposits - a proxy for its foreign currency interventions - rising by more than 26 billion francs this year.
Intervention to weaken a currency is one of the U.S. Treasury’s three criteria to be labeled a currency manipulator but none of 17 economists who answered an extra question said the SNB would adjust policy to avoid being accused of one.
The Bank’s foreign currency holdings now stand at 674 billion francs, larger than Switzerland’s entire GDP.
“At some point the Bank will have to consider if they want to keep expanding their balance sheet or look at other measures to tame the franc like lowering interest rates further,” said Kubli.
“It doesn’t depend on the SNB meeting, I think they will do it when they think forex interventions are getting out of hand.”
Polling by Khushboo Mittal; Editing by Catherine Evans