Switzerland’s foreign exchange reserves edged higher for a third successive month in September, despite a clear period of respite for Thomas Jordan and his team. The Swiss National Bank’s stock of foreign currency increased Sfr7.5bn from Sfr716.9bn to Sfr724.4bn, printing a new all-time high. Since the beginning of the year, the FX stockpile rose almost Sfr80bn as the SNB has continued to buy foreign currency, mostly EUR and USD, with the aim of protecting the Swiss franc against further strength.
However, the SNB has had a nice summer and was able to cut down significantly the pace and size of its interventions in the FX market. Indeed, the Swiss franc lost ground against most of its peers during the summer months. Since June, it fell against across the board, losing the most against the Canadian dollar (-8.25%), the Swedish Krone (-7.5%) but most importantly against the euro (-5.20%) and the greenback (-0.90%). Therefore, the sustained rise in FX reserve is not the result of a pick-up in SNB’s activity in the FX market, but rather the result of the appreciation of the SNB’s holding when valued in CHF. The stabilisation of the sight deposits held at the SNB supports this idea: since early June total sight deposits stabilised at around Sfr578bn.
The Swiss central bank will continue to sit back and relax, especially now that inflation is slowly picking up. The pressure on the SNB’s shoulders is finally easing a little as the EUR/CHF pair is trading around 1.15. However, a crisis could pop up at any time and the Catalan situation suggests that the European Union is not out of the wood yet, especially regarding the desire for independence of certain of its members.
By Arnaud Masset