Swiss Central Bank Spent Much Less on Interventions in Q3

Swiss Central Bank Spent Much Less on Interventions in Q3

05 January 2021

Swiss National Bank has spent CHF11 billion on interventions on foreign exchange rate market in Q3, much less than before, but still it took the total value for Jan.-Oct. 2020 to CHF100 billion, the highest in 8 years.

Less Interventions

              The Swiss National Bank has disclosed it spent on foreign exchange rate market, where it can buy euros or other currencies to stop CHF from getting overvalued, as much as 11 billion Swiss francs in Q3 2020. It is only one fifth of the value of interventions deployed in Q2, during the peak of COVID-19 first wave, when the bank has spent 51.51 billion francs. But still it means the total tally of interventions hit already 100 billion Swiss francs for first nine month of 2020. It is the highest sum since 2012. The value is also already higher than those of interventions for the whole 2019 – by 13.2 billion Swiss francs. The SNB stepped up its interventions last year due to the pandemic that made many investors buy Swiss francs, considered a safe-haven asset, and as a result the Swiss currency exchange rate hit five-year high versus euro.

Currency manipulator

              The heavy interventions on forex market didn’t go unnoticed by US, which at the end of last year labeled Switzerland a currency manipulator. Before, the country was on US Treasury watchlist and thus the SNB decided to publish quarterly results of its interventions to give more transparency and prevent from getting on currency manipulator lists. It didn’t help, but the SNB rejects the move of being labeled a currency manipulator. Its officials stick to their policy, claiming that without interventions Switzerland would have gone into an outright deflation. Additionally, the quantitative easing, which is heavily used by the European Central Bank, is out of question for Switzerland, as domestic bond market is too small. The SNB will continue its interventions to stop CHF exchange rate from getting too strong and prevent deflation.

CHF/EUR Situation

              During the peak of pandemic, when the first wave hit, CHF was very strong versus EUR. Recently, it is hitting lower levels – one of lowest in seven months, which is good news for Swiss economy, that relies very much on export and is hurt by the overvalued CHF. Still, Swiss Franc is way stronger than in April 218, when EUR/CHF exchange rate was at 1.20 francs, the weakest point it touched since January 2015, when the SNB scrapped the euro peg.

Interest Rates to Stay Negative

              According to the newest report on central banks’ policies, published by Bloomberg, Swiss National Bank is expected to keep interest rates at record low level of minus 0.75% throughout the whole 2021. Economists predict that the SNB will still follow its policy of currency interventions and negative interest rates, as it is the most effective one. Other central banks are expected to keep ultra-easy monetary policies, even when economies speed up and recover from the crisis caused by the pandemic. Bloomberg foresees lack of change also in the level of deposit rate of European Central Bank this year – it should stay at minus 0.5%.

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