Swiss National Bank’s forex interventions fall as franc weakens

Switzerland's lower inflation also meant the real external value of the currency was lower. — Reuters pic
Switzerland's lower inflation also meant the real external value of the currency was lower. — Reuters pic

ZURICH, March 22 — Switzerland’s central bank bought nearly 30 per cent less foreign currency during 2017 as its effort to fight the appreciation of the safe-haven franc started to pay off.

The Swiss National Bank purchased 48.2 billion Swiss francs (RM198.9 billion) worth of foreign currencies, down from 67.1 billion francs in 2016.

Interventions “occurred mainly during periods of uncertainty, when the Swiss franc was particularly sought-after as a safe investment,” the SNB said in its annual report published on Thursday.

The central bank noted the franc has weakened since the end of July, citing reduced political uncertainty in the eurozone following French elections and improved confidence about the global economy.

This curbed safe-haven demand for the Swiss currency, which fell by 5 per cent in the second half of the year. As inflation in Switzerland was lower than in other countries, the real external value of the currency was lower, the SNB said.

Still, it warned the franc’s recent weakening was “fragile”. “Renewed upward pressure on the Swiss franc cannot be ruled out,” it said.

Currency interventions and negative interest rates are the SNB’s main tools in its campaign to weaken the franc, which it describes as “highly valued” after changing its language from “significantly overvalued” last year.

A strong franc complicates life for Switzerland’s exporters by making their products more expensive outside the country.

Interventions have fallen steadily from 86.1 billion francs in 2015.

The SNB intervened heavily at the start of 2015, when it abruptly removed its cap on the franc’s value against the euro.

As a result of the SNB’s foreign currency purchases, its balance sheet has ballooned to more than 800 billion francs, larger than the entire Swiss economy, raising concerns it could swing between big profits and losses in the future.

To safeguard against such swings, the SNB increased by 5 billion francs the funds it sets aside as a cushion. Total provisions for currency reserves rose to 62.8 billion francs at year’s end.

The SNB is not required to make a profit, with its main mandate to ensure price stability in Switzerland. But a portion of any profit it does make is distributed to the Swiss government and the country’s 26 cantons. — Reuters

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