Currency analysts at Credit Suisse expect the Swiss National Bank to remain committed to price stability and to view franc appreciation as an important tool to contain inflation.

Given the domestic consensus on the benefits of a strong currency, Credit Suisse believes that the Swiss Bank will only intervene if the franc strengthens rapidly.  

Overall, Credit Suisse sees room for the euro to franc (EUR/CHF) to depreciate to 1.0050, which would be the lowest level since the beginning of 2015.

Strong franc as a fight against inflation

Credit Suisse notes that a strong currency has been a constant long-term mantra of the National Bank. The bank also highlights recent comments from National Bank Governor Jordan, who reiterated the commitment to price stability over the medium term.

Jordan added that high inflation mainly affects those on lower incomes. He added: “Price stability is therefore of paramount importance for the central bank to preserve social justice and harmony.”

In this context, Credit Suisse expects the strong franc to be seen as an important factor in containing the threat of imported inflation caused by global supply-side pressures and high energy prices.

Jordan adds: “Hence our view remains that as long as price pressures from abroad in the form of high commodity prices persist, the central bank will tolerate some moderate appreciation of the franc and will only intervene if the currency appreciates too rapidly.”

Credit Suisse also notes that Switzerland has a trade surplus despite the strong currency, and it is also significant that in real terms the Swiss franc did not appreciate during the pandemic.

There is also little evidence that the strong currency has damaged the economy, “Despite the recent strengthening of the Swiss franc, according to media reports, local businesses agree that this rapid movement is not having an immediate negative impact on the economy.”

The National Bank will also be wary of the potential negative impact of continued negative inflation. The central bank will closely monitor developments in the wage situation over the next few months.

The Swiss franc as a safe haven currency

Credit Suisse also notes that there is potential for defensive demand for the franc as a safe haven currency. The franc tends to strengthen if there are concerns about eurozone cohesion.

Credit Suisse notes: “A premature tightening of financial conditions in the euro area through interest rate cuts or hikes could potentially trigger a further widening of peripheral spreads.”