BLBG:SND Foreign-Currency Holdings Hit Record On Intervention
The Swiss central bank’s foreign- currency reserves surged to a record in May as the euro region’s increasing turmoil forced policy makers to step up their defense of the franc floor.
Currency holdings rose to 303.8 billion Swiss francs ($318 billion) at the end of May from 237.6 billion francs in the previous month, according to a statement published on the Swiss National Bank’s website today. Walter Meier, a spokesman at the SNB in Zurich, said by telephone that a “large part” of the increase was due to currency purchases to defend the minimum exchange rate of 1.20 versus the euro.
The central bank finds itself engulfed by the euro region’s worsening fiscal crisis after Greece’s inconclusive elections last month raised the specter of a break-up of the currency union. SNB President Thomas Jordan said last month that policy makers are “observing a considerable upward pressure on the franc” as investors shift into havens including the Swiss currency.
“It’s quite a significant increase,” said Alessandro Bee, an economist at Bank Sarasin in Zurich. “The euro crisis is decisive -- if there’s a further worsening, the SNB will be forced to remain active on markets.”
The franc was at 1.20113 versus the euro as of 10:46 a.m. in Zurich, little changed on the day. It has gained 1.2 percent this year, trading at an average of 1.2052.
Capital Controls
The SNB, which will hold its next monetary assessment on June 14 in Bern, imposed the currency ceiling in September after the franc surged to a record. Jordan said in an interview with SonntagsZeitung published on May 27 that a government-led panel is mulling measures including capital controls to weaken the franc if the turmoil escalates.
“This strong increase in currency reserves in May shows that doubts about the floor’s credibility are emerging and that pressure is increasing on the SNB,” said Julien Manceaux, an economist at ING Group in Brussels. “However, for the moment, there is no reason to believe that the floor could be broken even under higher pressure.”
So far, the ceiling has helped shield the economy from some of the European turmoil. Swiss economic growth unexpectedly accelerated in the first quarter, led by consumer demand. The unadjusted jobless rate declined in May, a government report showed today. At the same time, consumer prices had their eighth straight annual decline last month, partly as the franc strength made imports cheaper.
The currency holdings are calculated according to standards by the International Monetary Fund at the beginning of every month.
To contact the reporter on this story: Simone Meier in Zurich at smeier@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
