ZURICH — The Swiss National Bank’s foreign exchange reserves hit nearly 70% of the country’s annual output last month, yet the pace of their rise slowed, suggesting the central bank may have bought fewer euros than in previous months to defend its cap on the franc.
The central bank’s reserve data is scrutinised by investors for signs of how much the bank is spending to hold the limit of Sf1.20/€.
The bank set the limit last September, vowing to purchase unlimited amounts of foreign exchange to shield Switzerland from deflation and a recession.
The bank had Sf406.45bn in reserves last month, preliminary data it provided to the International Monetary Fund showed on Tuesday. However, the increase of Sf41bn from June was slower than in previous months.
"As long as the turmoil in Europe goes on, the central bank has to continue to intervene," Sarasin economist Alessandro Bee said on Tuesday. "But I have the impression the pressure is easing."
Initially, strong domestic support for the franc cap — and calls from exporters for the Swiss National Bank to weaken the currency further towards Sf1.25 or 1.30/€ — helped the central bank defend the level without having to resort to big interventions.
But the escalation of the eurozone crisis in recent months — as well as data showing the Swiss economy is performing better than its neighbours — have encouraged speculators to test the bank’s resolve, with the franc briefly breaching 1.20/€ in April.
Consumer prices fell slightly less than expected last month, data also showed yesterday, but remained below zero, buttressing the central bank’s justification for the cap. Despite falling prices, the economy has avoided contraction, in part due to robust domestic demand. The jobless rate stayed at 2.7% last month.
Also helping to keep critics of its cap policy at bay, the Swiss National Bank recorded a hefty profit for the first half of this year. Big interventions mean the central bank can suffer heavy losses, as occurred in 2010, prompting right-wing former justice minister Christoph Blocher to call for the bank’s chief at the time, Philipp Hildebrand to resign.
Central bank spokesman Walter Meier said a big part of the rise in the reserves for last month was due to purchases of foreign currency. However, during that month, the franc dipped more than 3% against the greenback, which would push the value of the bank’s dollar holding up in Swiss franc terms. That could mean the central bank bought fewer euros than in previous months.
In a sign pressure may be easing, the amount of cash commercial banks hold with the central bank — which may reflect efforts by the bank to defend its cap — rose less last month than in June. At the end of the second quarter, the Swiss National Bank held 60% of its reserves in euros, 22% in dollars, 8% in yen, plus a variety of other currencies.
Reuters
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