SWITZERLAND

SWITZERLAND

GVI Swiss National Bank Policy Meeting Preview Decision: June 19 at 08:30 GMT. SNB 3mo Swiss libor target: 2.75% Expected Decision: Risk of +25bp The SNB had indicated that the peak in interest rates had been reached. However, intensifying inflationary pressures and a probable ECB rate hike in early July could tip the scale to higher rates. The Swiss CPI (see below) is well above its target ceiling of 2.0%. The SNB manages the value of the CHF as critical element of monetary poilcy. SWISS NATIONAL BANK Policy Objective: The National Bank equates price stability with a rise in the national consumer price index (CPI) of less than 2% per annum. In so doing, it takes account of the fact that not every price movement is necessarily inflationary. Furthermore, it believes that inflation cannot be measured accurately. Measurement problems arise, for example, when the quality of goods and services improves. Such changes are not properly accounted for in the CPI; as a result, inflation, as measured by the CPI, will be slightly overstated. The chart above shows year/year CPI and the Swiss goal of less than 2% for this price index.

The chart above shows the current three month libor rate, the current three-month Euro-Swiss target and where the futures markets are currently trading three month rates for the specified periods in the future. The chart also includes comparisons of where these futures rates were trading most recently, a week ago and four weeks ago. The chart provides a view on where the markets feel Swiss interest rates are headed.

The chart above shows the Swiss three-month Euro-swiss rate target, three month libor, and two- and ten-year bond yields over the past twelve months.

The Australian economy is clearly starting to slow. A key focus for the Reserve Bank of Australia remains above target inflation, plus strong employment and commodity demand. This has kept the AUD underpinned. The Reserve Bank of Australia is still trying to rein in price pressures.