Wednesday, June 13, 2007
Tomorrow morning, at 9.30 am local time, the Swiss National Bank will announce its second quarter interest rate decision. A 25 bp rise in the LIBOR target is widely discounted; today's 3M LIBOR fix was 2.48%, a hair shy of the expected new target rate of 2.50%.
The SNB has also been the most vocal central bank in the world on the subject of the carry trade. For much of the past year, SNB officials have complained with increasing intensity about the weakness of the CHF and the prevalence of the Swissie as a funding currency.
Simply put, the time has come for the SNB to put up or shut up. Messrs. Roth, Gehrig, et al can really have no basis for complaint about CHF weakness if they are unwilling to do anything about it. It's more than three years since the SNB started raising rates; to date, they have hiked by a "whopping" 2.00%.
Gentlemen, if you don't want the CHF to weaken any more, then hike 50 bps. Appoint Rod Tidwell to the SNB board, if you have to. But if you want to complain about the weakness of your currency and expect the market to listen, you have to do one thing first.
The (higher yielding).
UPDATE: They blew it. Despite raising their current year GDP forecast from 2% to 2.5%, and even taking up their 2008 inflation forecast a smidge, the SNB did 25 bps. Please, messieurs, no more moaning about the CHF now!