CHF: Policymaker Shifts on Swiss Interest and Exchange Rates – Wells Fargo
Research Team at Wells Fargo Securities, suggests that the interaction between exchange and interest rates for Switzerland illustrate the importance of international factors in determining domestic interest rates.
“The depreciation of the Swiss franc during the 2005-2007 period accompanied the rise of the three-month LIBOR rate. In contrast, beginning in 2009, the rapid decline in the three month LIBOR rate was accompanied by a steady appreciation of the Swiss franc. From mid-2011 to the start of 2015, the Swiss National Bank (SNB) target exchange rate was associated with a steady LIBOR rate.
At the start of 2015, the SNB decoupled from the target and the Swiss franc immediately appreciated relative to the euro. The shift in policymakers’ response function away from an exchange rate target highlights the importance of the third factor—capital flows.”