Switzerland's central bankers may be feeling more relaxed following the recent weakening of the Swiss franc against the euro, but they are still expected to hold their ultra-loose monetary policy at their September policy meeting. Instead, the main focus for the Swiss National Bank's September 14 meeting will be whether or not to depart from its description of the franc as "significantly overvalued" after the euro gained nearly 5 percent versus the franc since July.

The latest Reuters poll of SNB watchers, taken September 7-12, suggests that is a close call. Eight economists who answered an additional question said it would keep that language, another eight said it would call the franc "overvalued", while another two said the SNB would opt to call the currency "fairly valued".

"The SNB may change the wording on the franc... but this shouldn't be seen to pre-announce action or its intentions, rather to reflect the current situation," said Alessandro Bee, an economist at UBS. SNB Chairman Thomas Jordan and his colleagues are also likely to be encouraged by the European Central Bank starting to pave the way for a gradual reduction of its stimulus programme - one of the main causes of the euro's gains.

"With the ECB looking more towards tapering, and the franc weakening against the euro recently, the SNB has more room to manoeuvre, but I think Mr Jordan will still remain very cautious and won't change policy for some time yet," said Bee. However, ZKB economist Cornelia Luchsinger was not convinced now was the time for the SNB to alter its language on the franc.

"The weakening of the franc in recent weeks gives the SNB more leeway to adjust their policy, and you can see they have clearly been intervening much less than before," she said. "The SNB is relaxed with the way the franc is going, but not relaxed enough."

The SNB has been fighting a long campaign against the highly valued Swiss franc, which weighs on Switzerland's export-reliant economy by making the country's products more expensive in the eurozone, their main market. All of the 35 respondents in the wider Reuters poll were unanimous in expecting the SNB to keep its target range for the Swiss franc London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent on Thursday. Most of them expect the SNB to keep it there through the end of next year.

Analysts were also unanimous in expecting no change in the -0.75 percent interest rate the SNB charges on sight deposits at its September 14 policy meeting. Negative rates, along with foreign currency purchases, have been a cornerstone of the SNB's policy to deter demand for the safe-haven Swiss franc since the central bank suddenly scrapped its cap in January 2015. Recent weak GDP data and still tepid inflation could also give the SNB a reason to stay on hold, said Peter Rosenstreich at Swissquote, who expects reduced foreign currency purchases to be the first stage of the bank's monetary normalisation.

Copyright Reuters, 2017