Could the Brexit Warrant a Monetary Policy Review?


Jun. 17 2016, Published 8:16 a.m. ET

SNB keeps rates unchanged, but open to further cuts

Thomas Jordan, the SWB’s (Swiss National Bank) chief, delivered an unchanged monetary policy. The LIBOR rates were maintained at -0.75%. The SNB maintained the target range for three-month LIBOR between -1.25% and -0.25%. The SNB maintained its expansionary policy while adding that it will go for more rate cuts if necessary. The SNB followed other major banks that refrained from any aggressive stance like the Fed, Bank of Japan, and Bank of England. All of them are playing a waiting game until the United Kingdom’s referendum.

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Will the SNB change its stance?

The SNB has always remained active in foreign exchange markets. The Swiss franc is considered a major safe-haven currency. A possible Brexit will result in investors turning to the safer assets. The demand for the Swiss franc could increase. This could lead to a huge appreciation in the Swiss franc—something the SNB doesn’t want to happen. Jordan also added that if the United Kingdom votes to leave the European Union, then there could be a review of the monetary policy. This is an explicit sign of more easing if the Brexit happens. The Swiss franc is also under pressure due to rising gold (GLD) prices. For more information on the correlation between gold and the Swiss franc, read Why the Swiss Franc Is the Golden Currency.

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Impact on the Market

Swiss ETFs like the iShares MSCI Switzerland Capped ETF (EWL) rose by 0.27% on June 16 after the monetary policy statement. The SPDR Gold Shares ETF (GLD) was trading on a contrasting note. It fell by 1.0%. This broke its rising trend since June 8, 2016.

Swiss banking ADRs (American depositary receipts) were on a positive trajectory. The Credit Suisse Group (CS) and the UBS Group (UBS) rose by 1.3% and 1.2%, respectively. Pharmaceutical company Novartis (NVS) also posted decent gains of 0.67%.


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