"(We're) looking at it with optimism, we can argue that very slowly the deflationary spiral seen for a couple of years now is seemingly coming to an end. That should encourage the SNB that its 1.20 franc cap (against the euro) is not only working on a forex basis but also for prices."
- Tony Nyman, analyst at Informa Global Markets
Consumer prices in the Alpine country stagnated in August, as they did in the previous month, indicating weak domestic demand, while a separate report showed the SNB foreign-currency reserves were little changed last month. The Federal Statistics Office said prices were down 0.1% from a month ago, with a median estimate of a flat reading, while on an annual basis inflation remained unchanged, from the same figure a month earlier. This data means not only weak demand for Swiss goods and services and also suggesting deflationary pressures that prompted the SNB to cap the domestic currency two years ago are easing. Also Friday, another report showed Swiss industrial production tumbled 1.1% in the second quarter, while the industrial turnover decreased 0.8% annually. Moreover, the number of new orders plunged 4.2%, reflecting weak economic outlook.
Meanwhile, holdings by the Swiss National Bank stood at 434.2 billion franc in August, slightly down from 434.3 billion a month earlier, as the Franc was relatively steady against the single currency. In order to defend the cap the central bank has amassed foreign-currency reserves equal to almost 75% of the nation's GDP. The SNB currently projects growth of 1%-1.5% for this year, while the fresh outlook will be published during its policy assessment on September 19.
© Dukascopy Bank SA