Wednesday, August 3, 2011

Swiss National Bank Announces Actions Against Strong Swiss franc

The Swiss National Bank (SNB) announced a set of measures designed to stem a sharp acceleration in the Swiss franc (CHF).  The Bank announced: "Effective immediately, the SNB is aiming for a three-month Libor as close to zero as possible, narrowing the target range for the three-month Libor from 0.00–0.75% to 0.00–0.25%".  The Bank will also "significantly increase the supply of liquidity to the Swiss franc money market over the next few days" and will no longer renew repos and SNB Bills that fall due.  The SNB will be watching the foreign exchange market closely and "will take further measures against the stength of the Swiss franc if necessary".

On the currency, the Bank noted that it "considers the Swiss franc to be massively overvalued at present. This  current strength of the Swiss franc is threatening the development of the economy and increasing the downside risks to price stability in Switzerland".  The Swiss franc has gained in recent times due to the US debt ceiling drama, as well as the ongoing sovereign debt crisis in Europe, the CHF is considered by many as a safe-haven currency and tends to rise in times of crisis and uncertainty.

At its most recent monetary policy meeting in June this year the Swiss National Bank maintained its main interest rate at 0.25%.  The Bank is forecasting inflation of 0.9% during 2011, while 2012 inflation is expected at 1% and 1.7% in 2013. The CHF last traded in the high 0.77's against the USD, with the USDCHF exchange rate rising to 0.777 from about 0.763 prior to the announcement.


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