Nomura has analyzed recent Swiss inflation data and Swiss Franc (CHF) dynamics, noting that the February Consumer Price Index (CPI) remained unchanged at 0.1% year-on-year, which was slightly above Nomura's forecast of 0.0% and the consensus estimate of 0.0% [1]. This marks the third consecutive month with inflation at this low but positive level, which Nomura considers good news for the Swiss National Bank (SNB) [1]. The SNB's latest forecast anticipates inflation averaging 0.1% year-on-year across the first quarter, and the current data aligns with this projection [1].
Nomura highlights that the strength of the CHF is helping to lower imported prices, thereby offsetting some risks associated with energy costs [1]. Energy prices may exert upward pressure on inflation, but Swiss consumers are less exposed to energy price shocks compared to their European counterparts, as energy constitutes only 5% of the Swiss CPI basket versus 9% in the euro area. Additionally, Switzerland's electricity grid relies heavily on hydropower, although imported fossil fuels remain important for the industrial sector [1].
The ongoing risk environment, including international developments such as the conflict in the Middle East, could lead to further appreciation pressures on the CHF, which would reduce import costs and counteract higher energy prices [1]. The SNB has stated this week that it is increasingly prepared to intervene in the foreign exchange market in response to these international developments [1].
Nomura expects the SNB to prioritize foreign exchange intervention to manage CHF strength rather than resorting to another cut to a negative policy rate. The bank forecasts that the SNB will maintain its policy rate at 0.00% for the foreseeable future [1].
CONCLUSION
Nomura's analysis suggests that the SNB will focus on FX intervention to manage CHF strength, rather than adjusting its policy rate, which is expected to remain at 0.00%. The current low inflation and CHF appreciation are seen as positive for Swiss price stability, with limited exposure to energy price shocks. Market participants should monitor SNB statements and international developments for potential FX actions.