Return of the Jedi, er, SNB
‘There is no simmering trade war,’ ‘international trade remained dynamic’ – so spoke the Swiss National Bank today as it held monetary policy unchanged. Maybe this Jedi Mind Trick of saying something and so making it true will work, but we wonder. It overlooks risks that could strengthen the CHF and move Swiss inflation. The SNB is likely to continue guiding the market by highlighting conditions that support its objective. Or perhaps they are just seeing through the short-term hype.
The SNB still views the CHF as highly valued (despite EUR/CHF nearing 1.20) and reiterated its participation in foreign exchange markets as necessary. Speculation that the SNB would lead the European Central Bank on policy tightening continues to be off the mark: the inflation forecast shifted downwards for 2018 from 0.7% to 0.6%, hardly enough to move interest rates. The SNB expects economic growth of 2.4%, driven by manufacturing. Mortgage lending is down, but house prices are starting to rise, warning of a potential correction. Overall, the SNB is content with the current policy and in no rush to adjust. We suspect that the first hike will occur in 2019, a solid 6 month after the ECB’s.
Indian approaches price stability
As inflation slows and the Indian economy grows (7.10% in December 2017), we remain confident that market risk is being distanced. The Reserve Bank of India will therefore maintain its current interest rate at 6% at its next monetary policy meeting on 5 April. USD/INR is currently at 64.86 (+1.86% this year) and expected to remain in this range near term.
India is showing openness, holding recent talks with the Philippines President Rodrigo Duterte, Iranian Prime Minister Hassan Rouhani and French President Emmanuel Macron about topics such as industrial developments, security and education. February’s Wholesale Price Index came out yesterday at 2.48% annually, confirming our view of moderate expansion for Manufactured Goods, Primary Articles and Fuel & Power. The recently published February Consumer Price Index shows a similar pattern at 4.44% following January’s 5.07%. This supports moderate inflation, giving further relief to the Reserve Bank of India.
