Is the Swiss National Bank getting nervous? - Commerzbank

Yesterday's Swiss inflation figures for April are likely to have heightened the concerns of the Swiss National Bank (SNB) once again. Not only did the headline rate fall to 0% year-on-year (and now just one step away from deflation), but the core rate also fell surprisingly sharply, suggesting that the recent uptrend may not be sustainable after all, Commerzbank's FX analyst Michael Pfister notes.

SNB's room for manoeuvre is limited

"The slowdown in inflation should not come as too much of a surprise: in April, the oil price fell sharply thanks to OPEC+ production increases and the US tariff announcements, causing Swiss transport prices, which are heavily dependent on the oil price, to collapse - seasonally adjusted, they fell by around 0.75% month-on-month. And the strong Swiss franc is likely to have contributed to the fact that other components also recorded only modest price increases."

"The SNB is probably hoping for a reversal of the trend in the coming months. However, all signs now point to a further rate cut of 25 basis points to 0% in June. It will be interesting to see what steps are taken after June. We have explained several times in recent weeks why we believe the SNB will hesitate before repeating its experiment with negative interest rates."

"The fact that the Swiss franc came under pressure yesterday after the figures were released is probably partly due to the market now seeing things differently. However, the correction of the initial weakness also shows why the potential for the franc to weaken is limited. After all, even if negative interest rates are repeated, it should be clear to every market participant that the SNB's room for manoeuvre is limited."