Swiss National Bank, Swiss National Bank Interventions | Finance Brokerage

Swiss National Bank Interventions

The Swiss National Bank raised its foreign currency interventions to their highest level since the Brexit referendum in 2016. It is battling against the rising value of the safe-haven Swiss franc due to the COVID-19 pandemic.

Swiss sight deposits are money that commercial banks park with the central bank overnight. Total sight deposits went high up to 608.826 billion francs or 617.41 billion from 602.992 billion francs last week. This includes other deposits on sight in Swiss francs.

The SNB stated it is escalating its currency market interventions to slow down their currency in the forex market.

The 5.8 billion franc increase was the biggest this year. Last week’s 4.4 billion francs was the highest since March 3 which was 2.78 billion francs. The Swiss National Bank spent 2.3 billion francs or 2.32 billion during the whole of 2018.

Investors have sought for a resolution to offset stock market losses resulting to the rise of the Swiss currency. Investors started seeking less risky assets as markets plummeted due to the coronavirus pandemic.

The Swiss currency rose to its highest level against the euro in 4 ½ years. However, the rise is threatening the country’s export-reliant economy. 

What Economists Say

The Swiss National Bank said it was escalating its foreign currency purchases to stem the rise in the franc. It will intervene more strongly in the FX market to contribute to the stabilization of the situation. 

Alessandro Bee, an economist at UBS, said the rise in sight deposits showed the SNB was clearly increasing its activity. This is the strongest weekly rise since mid-2016, after the Brexit vote, and is a clear sign of intervention.

The central bank was able to avoid cutting its -0.75% interest rate further into a negative territory last week. This means these interventions are slowing down the franc’s appreciation. 

According to Karsten Junius, an economist at J. Safra Sarasin, interventions seem to be working. The franc is not passing the 1.05 barrier against the euro. The SNB will continue to defend that barrier in the forex

She said there is no limit for the Swiss National Bank. Its reaction will continue depending on the severity and length of the coronavirus crisis. 

Maxime Botteron, an economist at Credit Suisse, said the SNB is clearly in the market. It is likely that interventions will rise in the future as the bank tries to reduce demand for the franc.

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