Switzerland won't tighten its generous monetary policy unless the European Central Bank does – so goes conventional wisdom. Signs are mounting that the Swiss National Bank could pull off a surprise.

No surprises are expected from Swiss central bank head Thomas Jordan when he conducts Switzerland's last policy meeting of the year on Thursday: the alpine nation cannot ease off its expansionary monetary regime until the European Central Bank makes a move to do so, and that isn't expected until next year.

That negative interest rates have skewed the market and led to a glut of new mortgage lenders in Switzerland's already-overheated housing market is even less of a surprise. The nearly four-year-old policy weakens banks, which have seen their interest income dissipate. 

Billions in Charges

Several institutes have resorted to deeply unpopular measures which effectively pass on the negative interest rate charges to clients. Swiss banks have paid the central bank an accumulated 5 billion Swiss francs ($5.03 billion) since the beginning of 2015.

Four years of negative interest rates and no relief in sight? There are cautious signs that the SNB's Jordan will surprise financial markets on Thursday – just like in January of 2015, when the central bank suddenly and without warning removed a peg against the euro which it had previously defended the franc against.

No «Forward Guidance»

Shortly before this step, Jordan and his fellow policymakers Fritz Zurbruegg and Monica Maechler had still defended the cap and vowed to fight the franc rising above it. Their rapid reversal was taken badly in some quarters of foreign exchange markets as well as by Swiss export-heavy firms.

Jordan, Zurbruegg, and Maechler proved their absolute independence with the step: they had done nothing to telegraph to the market their intentions on January 15. Other central banks like Mario Draghi, Ben Bernanke and later Janet Yellen maintained a cautious communication style which has become known as «forward guidance», in an effort to lessen market turbulence.

Laying the Groundwork

In hindsight, some SNB watchers had spotted cautious signs for the sudden 2015 step, and responded accordingly. Four days before Jordan removed the cap and let the franc float freely, a monetary doyen and former adviser to the central bank, Ernst Baltensperger, had argued for exactly this in an interview with Swiss weekly«NZZ am Sonntag»  (behind paywall, in German).

To be sure, Jordan won't have been spurred to yank the cap following the elder statesman's interview. But Baltensperger's well-founded comments did lay the groundwork for the step.

«Unfettered Activities»

There are similar signs for this Thursday's decision. «Swiss National Bank: If Not Now, Then When?», the SNB's former chief economist, Kurt Schiltknecht, wrote recently in a commentary in daily «Neuen Zürcher Zeitung» (behind paywall, in German).

The 77-year-old drew on several aspects of Swiss post-crisis policy including SNB's balance sheet bloating from defending the franc. With these «unfettered activities,» central banks «are on the fast track to bypassing financial markets and destabilizing the economy», he argued.

Voice of Business

Schiltknecht, who doesn't appear polemic in the commentary, views current monetary policy as one reason behind the banking system weakening. An erosion of interest margins has weakened banking profitability, but also lessened banks' risk appetite for lending, he said. «The cost of waiting further are greater than the danger of acting prematurely.»

It isn't just economist-turned-banker Schiltknecht who has had enough of the charges on Swiss franc deposits. Economiesuisse, Switzerland's influential business lobby, recently took (in German) a favorable stance on inching negative rates back into positive territory.

SNB's Cash Doesn't Wash

The Swiss economy can withstand monetary tightening, is the thinking. Economiesuisse's chief economist Rudolf Minsch said last week that the SNB could and should move before the ECB does.

The Swiss franc charges were always an unpopular measure in the SNB's toolbox, but until now Jordan was able to justify their necessity. His arguments no longer seem to be wash. On Thursday, market watchers will be scrutinizing whether the SNB lays the groundwork to tighten its policy for the first time in more than a decade.