What To Expect From The SNB & ECB Rate Decisions

The Fed’s interest rate decision later today is only the first of several such meetings from major central banks.

Both the SNB and ECB are projected to keep rates on hold tomorrow. However, we expect them to get extra attention for different reasons. And all this while we wait for the fallout from the UK General Election!

The ECB is probably what most people are going to be looking at since this is the first meeting for the new President Christine Lagarde.

We’ll be especially interested because she’s been notoriously tight-lipped about her views on policy since taking the top job on November 1st. In all of her public speeches to date, she has managed to steer the conversation elsewhere.

But now, Lagarde will have to give her views on the monetary situation in Europe. Naturally, we expect this to generate a lot of buzz among traders and analysts!

The question on everyone’s mind is: how will her position change in comparison to her predecessor? And therefore, how much do we adjust our outlook for the ECB?

Now What?

The consensus among economists is that under the new leadership, the ECB won’t be cutting rates for the foreseeable future.

The question now is how long the rates will remain before returning to a growth cycle. There are some questions that we can expect reporters to ask during the press conference following the rate decision.

1. Views on the September growth package?
   This is likely to be a proxy to judge whether Lagarde is in favor of more easing.
2. Will there be a change in how policy decisions are made?
   Current policy is focused on boosting inflation, but will there be other indicators she’s interested in?
3. What about increasing government spending?
   Germany’s stubborn refusal to open its wallet remains a contentious issue. And with the ECB supplying liquidity, it would certainly be an issue for the central bank.

All Is Not So Good in Switzerland

There is a very strong consensus among economists that Chairman Jordan will announce that the SNB has decided to keep its monetary policy steady.

We also expect him to reiterate that he sees the franc as highly valued. So sure of the outlook for the SNB are analysts, that none are actually predicting a change in policy for at least the next year!

However, banks in Switzerland are increasingly unhappy with the persistent negative rates that have been in place for five years at this point.

They undermine Switzerland’s prized banking system and affect pensions. However, the persistently strong franc given economic uncertainty has been the main argument the bank has made to keep policy where it is.

Continuing Intervention

Of those analysts inclined to suggest where things might go after a year from now, some even predict a further negative move. This means that the markets are likely to be very attentive to Jordan’s press conference after the rate decision, looking for any clues on what to expect over the next couple of months.

The SNB has reacted to the strong franc with currency intervention. This seems to be the preferred tool to avoid riling up the bankers even more with a rate cut.

We’d want to know if the SNB expects further appreciation of the franc. This would imply more intervention and potentially a rate cut. The best clues for that will be during the press conference immediately after the policy decision.

And we could expect some market volatility depending on how traders parse Jordan’s responses!