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Swiss ZEW Falls Sharply

James Boston
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Swiss ZEW Falls Sharply

Following yesterday’s mixed Eurozone ZEW data, the Centre for European Economic Research has just published the Swiss version of this key sentiment indicator. The ZEW Survey – Expectations for Switzerland for the month of June has come in at 4.8, this compares to May’s reading of 7.4 and the market consensus estimate for a level of 10.0.

The Swiss National Bank (SNB) will hold it’s regular monetary policy meeting tomorrow, there is obviously no scope available to the Bank to cut the key interest rate which has been at 0.0% since 2011. There is however the potential for the Swiss policy makers to take a leaf out of the European Central Bank’s book and take the Swiss equivalent of the central bank overnight deposit rate into negative territory.

However, unlike the Eurozone that now officially has a negative overnight deposit rate but the interbank market remains positive, currently in Switzerland the opposite exists where official rate is not negative but the interbank market is. Structurally, the Swiss liquidity situation is very different than that of the Eurozone. Whereas Eurozone banks are hoarding what cash they have, the Swiss banking system is awash with liquidity.

Despite the excess cash in the Swiss system it remains unlikely that the SNB will take any action to discourage banks depositing funds with it. This includes imposing maximum limits on bank deposits and also most likely the introduction of a negative overnight deposit rate. The SNB is in a unique position in that it is aggressively defending the artificial cap it has placed on it’s currency against the Euro, this means that it needs to run a large balance sheet in order to be able to finance the purchase of foreign currency on the open market, from this point of view it would be dangerous at this point for the SNB to reject member bank funding as it could spark a speculative currency attack.

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