Nomura analysts argue that the conflict-driven risk environment is likely to intensify appreciation pressure on the Swiss Franc. With inflation very low and the SNB policy rate at 0.00%, they see the central bank more inclined to intervene in FX markets to curb CHF strength rather than resort to a return to negative rates.

Franc strength and SNB response

"In the rest of Europe, currency appreciation pressures do not change our prior view for Norges Bank and the SNB, though we think the SNB is likely to intervene with FX purchases if there is further significant CHF appreciation."

"The risk environment following the start of the conflict adds to the likelihood of further appreciation pressures on CHF."

"With the SNB policy rate at 0.00%, the SNB’s main tools to prevent deflation as a result of further CHF appreciation are a negative policy rate or FX intervention."

"SNB Chairman Schlegel has been clear that the bar for a negative policy rate is high."

"Furthermore, the SNB said in a statement today (March 2) that “in view of international developments, we are increasingly prepared to intervene in the foreign exchange market”. We therefore view FX intervention to stem CHF strength as more likely than another policy rate cut."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)