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SNB Issues Statement on Interventions, Wows to Continue Them

SNB Issues Statement on Interventions, Wows to Continue Them

28 September 2020

The SNB responded to public criticism of its interventions on foreign markets, and wowed to continue undertaking them in order to keep CHF exchange rate from getting too strong.

Surprise Statement

                The Swiss National Bank has issued a surprise statement on its monetary system, in which it has announced plans to publish from now on figures on the volume of interventions on exchange rates’ market quarterly, not just once a year, to improve transparency on the matter. The announcement is perceived as a reply to critics of its aggressive interventions, mainly coming from US. It came after the SNB regular policy decision to keep current interest rates due to the fact that the Swiss franc exchange rate is highly valued, and thus the SNB is prepared to  “intervene more strongly” when needed. Thomas Jordan, the President of the SNB, said in a call to journalists that “expansionary monetary policy remains essential.”

Currency Manipulator?

                Jordan also confirmed that decision to change schedule of publications of data on interventions was made in a response of high interest of public, both abroad and in Switzerland. Even though, he acknowledges that there were situations in which publishing more details didn’t help, but in some cases it proved to improve transparency and attract less interest from public. Swiss central bank policy, aimed at fighting deflationary risk and too strong CHF, has put recently Switzerland in troubles. The country landed on US Treasury’s watchlist of countries that are alleged to manipulate their exchange rates. US suggested back then that Switzerland should publish more often data on interventions. If situation gets worse, and Switzerland will be enlisted as a currency manipulator by the US Treasury, investors might begin to doubt if the SNB is able to intervene, and thus put currency’s price even higher. In last days, CHF exchange rate remained flat, after previously it hit a five-year high in 2020. Still, it is very vulnerable to risks, and situation like Brexit or US elections might put it high again.

Aggressive Interventions

                In a call to journalists, Jordan also admitted that this year the SNB intervened more strongly. As per Credit Suisse Group AG calculations, policy makers in Switzerland have spend more than 90 billion Swiss francs (around 98 USD as per average exchange rate), on interventions on foreign markets, on actions like buy euros or other currencies, just in first half of 2020. Over the summer, the interventions were less aggressive, as euro was on the rise due to the European Union first ever economic aid package, and recession in country seems to be less deep than it was feared before.

Rates Kept Low

                Interventions are not the only measure the SNB takes to keep CHF from not getting too strong. Other are interest rates, now at historic low level of minus 0.75. Last Thursday, the SNB kept them at this value. This helps the bank keep off the threat of deflation. This June the SNB predicted Switzerland inflation rate for the end of year to be negative, and to post small growth in 2022. According to the SNB, positive rate of inflation below 2% in medium term is the goal that can guarantee stability of prices.

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