Swiss central bank FX reserves’ rise fuels talk of interventions

By John Revill

ZURICH, Feb 7 (Reuters) – The Swiss National Bank could have resumed selling Swiss francs to weaken the safe-haven currency, analysts said on Wednesday, after data showed a big jump in its foreign currency reserves last month.

The Swiss National Bank’s foreign currency reserves rose by 8.2 billion francs in January, according to SNB data.

The news followed a big rise in sight deposits last week, traditionally a sign the SNB is selling newly created francs to commercial banks in exchange for dollars, euros and yen as way to weaken the Swiss currency.

The central bank declined to comment on Wednesday.

In the last 12 months, the trade-weighted Swiss franc has appreciated by 9.0% in nominal terms against a basket of currencies.

The strength of the franc has made exports more expensive, adding to the woes of Swiss manufacturers already facing a downturn in demand.

It was “highly probable” the SNB was responding to these concerns by intervening to weaken the franc, said Karsten Junius, an economist at J. Safra Sarasin.

“The SNB has made it clear that it does not welcome the strong appreciation of the Swiss franc and the effect it is having on the Swiss export sector, particularly the manufacturers,” he said.

Previously the SNB had supported a strong franc as a shield against imported inflation, but price rises have ebbed in recent months and have been within the central bank’s target range for the last seven months.

SNB Chairman Thomas Jordan last month recognised the negative impact of the franc’s appreciation on the Swiss economy, particularly exporters, and ruled out further interest rate hikes.

EFG International economist GianLuigi Mandruzzato said recent central bank comments about the appreciation of the Swiss franc also pointed towards a change of course.

“Interventions are likely to remain the tool of choice and are better than interest rates for small adjustments as the SNB can react on the spot with targeted measures,” Mandruzzato said.

“They are quicker and easier to deploy than interest rate cuts,” he said, and could be used to smooth the currency’s appreciation.

Still, UBS economist Alessandro Bee was cautious about whether the SNB had switched to a deliberate attempt to weaken the currency.

“The Swiss franc reached 0.93 versus the euro last week, but that’s not the level where we think the SNB would intervene,” he said.

“If the franc was approaching 0.90, that would have much more psychological impact and would probably trigger interventions. But intervening at 0.93 does not make a lot of sense.” (Reporting by John Revill; editing by Christina Fincher)

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