The National Bank wants to keep the franc strong by selling foreign exchange. (archive image)
In the second quarter of 2022, the SNB had stopped its foreign exchange purchases, which had been common for years to weaken the Swiss franc. In the period from April to June, foreign exchange was sold for the first time – and that was worth five million. In the first quarter, the SNB had bought foreign exchange for 5.7 billion.
In 2021, the SNB had even acquired foreign currencies amounting to 21.1 billion francs to prevent an unwanted appreciation of the franc – but that was far less than the massive interventions in the corona year 2020 of around 110 billion francs.
All in all, around 350 billion francs in foreign exchange purchases have come together since 2015. In mid-2022, foreign exchange investments of 884 billion were piled up at the SNB.
For many years, the SNB considered the Swiss franc to be “significantly overvalued” or “overvalued”, which is why it intervened in the foreign exchange market. It therefore brought Swiss francs into circulation by buying foreign currencies. The plan: weaken the franc exchange rate and support the domestic economy through the additional offer.
In the meantime, the SNB has completed an about-face: in the mid-June assessment of the situation, it declared for the first time that it no longer considered the franc to be overvalued. Because the Swiss franc has depreciated on a trade-weighted basis. This happened because inflation in the most important trading partners is almost galloping compared to Switzerland.
The National Bank remains active in the foreign exchange market and would be willing to buy foreign exchange in the event of an “excessive appreciation”, said SNB President Thomas Jordan. Conversely, if the franc were to weaken, the SNB would also consider selling foreign exchange. Now she has done it again.
Because the appreciation of the Swiss franc is an “ally” of the SNB. It helps to curb inflation imported into Switzerland. If necessary, the central bank can even accelerate the appreciation somewhat by selling foreign exchange.
In fact, the euro, the most important accounting currency for both imports and exports, fell from around CHF 1.00 to just under CHF 0.97 in the observation period from July to September. On the other hand, the US dollar has appreciated by almost three centimes to almost CHF 0.99.
At the same time, the SNB has raised interest rates three times this year, currently at 1.0 percent, after keeping interest rates at minus 0.75 percent for more than seven years.