The Swiss National Bank (SNB) kept its policy rate unchanged at 0%, maintaining its stance as a low-yield funding currency, according to OCBC strategists Sim Moh Siong and Christopher Wong [1]. The SNB also revised its foreign exchange intervention language, removing its previous 'increased willingness' to intervene, which signals greater tolerance for a stable or stronger Swiss Franc (CHF) but does not indicate a hawkish shift [1]. Following the announcement, the CHF weakened, reflecting market expectations that the SNB will not pursue aggressive policy tightening [1].
Inflation remains comfortably within the SNB's 0–2% price stability range, with the central bank forecasting average inflation of just 0.8% in 2027 and 2028, assuming policy rates stay at 0% throughout the forecast horizon [1]. The SNB attributed the recent rise in inflation mainly to oil-related costs, while underlying medium-term inflation pressures have increased only slightly [1].
OCBC strategists believe that the SNB is unlikely to validate the market's relatively hawkish pricing, as OIS markets continue to price a meaningful probability of a rate hike as early as December [1]. They expect rates to remain unchanged well into 2027, reinforcing the CHF's status as a funding currency rather than an investment currency [1].
Risks to CHF funding, such as a sharp rebound in gold prices or a material deterioration in the European growth outlook, are noted but not considered imminent by OCBC [1]. As a result, the CHF is expected to retain its role as a low-yield funding currency over the coming months [1].
CONCLUSION
The SNB's decision to keep rates at 0% and its more tolerant stance toward a firmer Swiss Franc reinforce the CHF's status as a low-yield funding currency. With inflation forecasts remaining subdued and no imminent policy shift expected, market impact is likely to be limited. The CHF is expected to remain anchored as a funding currency in the near term.