ZURICH- The Swiss National Bank will resist the urge to alter interest rates to tame a strengthening of the Swiss franc and instead rely on forex purchases, according to analysts polled by Reuters ahead of the central bank's monetary policy decision.
Although the Swissie has risen to its highest level against the euro since July 2015 in recent days, none of the 32 economists questioned expected the SNB to lower its policy interest rates from the current level of minus 0.75% on Thursday.
Economists say the negative rate no longer deters investors who are instead betting on further appreciation of the franc, while taking rates deeper into negative territory would spark fierce opposition in Switzerland.
Instead, around 85% of the economists expected the SNB to rely on foreign currency purchases to slow the appreciation of the franc, either quietly or accompanied by louder verbal warnings to the market it was ready to act.
Nearly all analysts -- 11 out of 12 who answered the question -- said the SNB would wait for the European Central Bank to start raising interest rates before it followed suit.
They also still expected the Bank to keep its description of the franc as "highly valued" despite the recent appreciation of the currency, which has been partly caused by rising inflation in the euro zone.
"I think they will keep the wording as it is, describing the franc as highly valued, and not change their policy on Thursday either," said Valentin Bissat, senior economist at Mirabaud.
"As long as the franc's rise is based on fundamentals – such as interest rates and inflation differentials between Switzerland and the euro zone, rather than safe haven flows and is appreciating not too quickly or too strongly to affect economic activity in Switzerland, the SNB will be ok with that."
The Swiss economy was doing relatively well, reducing the need for the SNB to change course, added GianLuigi Mandruzzato, an economist at EFG Bank.
"Although the franc has appreciated a lot versus the euro, it takes two to tango. For one currency to be strong, like the franc in this case, the other - the euro - has to be weaker," he said.
"The Swiss economy is doing well, and dealing with supply bottlenecks better than others, while Swiss inflation is in the SNB's comfort zone."
While the SNB has appeared to massively reduce its foreign currency purchases in recent weeks, there was little room for the central bank to take interest rates lower, he added.
"Any further cut would be strongly resisted by the public who would be concerned about it being passed on to their savings accounts," he said.
(Reporting by John Revill; polling by Swathi Nair and Sujith Pai; Editing by Alison Williams) ((John.Revill@thomsonreuters.com; +41 58306 7022;))
