(Bloomberg) — “Sometimes you have to make tough decisions.”
That was the comment of Swiss National Bank President Thomas Jordan in early 2016 as he looked back on the market chaos that had greeted his decision to scrap his country’s currency cap.
Thursday’s unexpected 50 basis point interest rate hike was not a shock on this scale, but it was a decision taken from the same playbook.
While central bankers from the Federal Reserve to the Bank of England generally try to steer the markets towards monetary changes, whether on interest rates or the purchase of bonds, the Jordanian SNB favors a more brutal approach. It intervenes in the foreign exchange markets without notice, it changes policy outside of scheduled meetings and it has now embarked on a cycle of tightening without notice.
Goldman Sachs said the “warmongering surprise” may be just the start. He sees the rate rising to 1.5% this time next year, from -0.25% currently, from the September meeting.
Given the history, Capital Economics even claims that a second rate hike before September is possible. Whenever the next move comes, it will end Switzerland’s sub-zero era, which was introduced in late 2014 to deter investors from piling on safe Swiss assets and driving the currency higher.
For Jordan, 59, the removal of the currency cap was the defining moment of a quarter-century at the SNB so far, a decision that was unleashed on the world on a Thursday morning in January 2015.
It wasn’t the Swiss central bank’s first curve ball, either. Political changes in 2011 and 2014 – two off-schedule rate cuts – also came unexpectedly, although the first came under Jordan’s predecessor Philipp Hildebrand.
The occasional shocks contrast with the generally more discreet – perhaps more Swiss – style of operations of the SNB. The three members of the council operate by consensus, never express disagreements in public and refuse to publish the minutes of their deliberations.
This time, keen observers at the SNB got a hint that something might be up after Jordan warned of inflationary pressures last month. His comments on “second-round effects” sent the franc higher against the euro, and this week’s meeting was seen as a close call by some.
But even then, economists in a Bloomberg survey had not expected a rate hike.
“I thought there was no chance they would go up, so I was completely wrong,” said Brad Bechtel, global head of foreign exchange at Jefferies in New York. “I’ve never had much luck with the SNB.”
Jordan is unlikely to have any regrets.
He didn’t talk about the 2015 turnaround and on Wednesday said investors should be prepared for more surprises in the future, should the situation warrant.
The SNB, he said, “does not deal with forward guidance”.
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