Claire Jones

Will the Swiss National Bank lower the cap on the euro further in the new year? It might have to if it wants to keep companies in the country happy.

The SNB’s latest exchange rate survey, which the central bank compiles quarterly, shows that an even higher proportion of businesses are struggling despite the introduction of the cap at the beginning of September. Read more

“Absent significant shock, notably on the currency, the SNB should be in the position to start tightening the policy rate in the near term.” This from the IMF, as it raised its growth forecast for the Swiss economy to 2.4 per cent this year, after 2010 growth exceeded expectations. The Swiss National Bank has maintained a near zero rate since January 2009, officially targeting a three-month Swiss franc Libor rate of 0-0.75 per cent.

Mortgage lending standards should also be tackled with better regulation, says the IMF, arguing: “The development of lax lending standards in the mortgage market and increasing interest rate risk call for pre-emptive measures.” While a rate rise should work to reduce mortgage lending, its effects would be “limited”, so “concerns related to mortgage lending should be addressed by macro-prudential instruments.” Read more

The Swiss National Bank no longer accepts Ireland’s government bonds as eligible collateral in its repo operations. It’s probably not earth-shaking for holders of Irish government bonds, following earlier margin calls on these assets by LCH.Clearnet last year. On the other hand, it’s an interesting window into how at least one European central bank is taking care over its collateral, unlike a few others we could mention.

Modifications to the SNB’s collateral baskets over the last year emerge in this little spreadsheet (Excel file). Several other Irish-domiciled assets also became nicht Repo-fähig in late December 2010, around the time Ireland lost its last AA- credit rating. Anglo Irish medium-term notes, Depfa bonds, etc.

The SNB’s eligible collateral criteria require that securities posted for repo have this AA- rating and that their country of domicile also bears the same rating, which seems open and shut. Until you read that the bank can make exceptions for sovereign securities rated below AA-.

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For the first time since records began, core prices are falling in Switzerland. Core inflation, which excludes food, drinks, tobacco, seasonal products, energy and oil, recorded a 0.1 per cent drop during October, according to official data, the first fall since at least 1994. Swiss interest rates are expected to remain on hold into at least Q3 2011.

Consumer price inflation for the year was slightly below expectations, with prices rising 0.2 per cent year-on-year. The Swiss central bank has warned that overall inflation could also turn negative next year, but Citi analysts don’t think the country risks prolonged and harmful deflation: Read more

The Swiss National Bank may have suffered paper losses of up to SFr10bn (€7.5bn) from huge interventions in the currency markets to restrain the value of the franc.

The central bank is expected by market observers to report a big loss when it publishes second-quarter accounts in mid-August. Economists cannot make a precise forecast, as the SNB does not reveal when, or at what rates, it has sold francs and bought other currencies – mainly euros – in recent months. However, Martin Neff, chief economist of Credit Suisse, said: “It’s certain there will be a big loss.” Read more

Investors may wonder why the euro is not trading even lower given the almost universal bearish sentiment on the single currency. The answer could lie in Switzerland.

The Swiss National Bank shocked the market on Tuesday by announcing that, as a result of its intervention in the foreign exchange markets, its currency reserves leapt more than 50 per cent last month from $145.6bn in April to $261.9bn in May. Read more

Rumours and anecdotal evidence of a shift in Swiss currency policy have been backed up by the comments of a Swiss National Board member. Read more

Expect greater collaboration between the central bank and regulator in Switzerland. They have signed a memorandum of understanding saying they will work more closely together in future.

The two bodies worked more closely during the financial crisis, and fell in love found some common ground. Principal changes/ how it will workRead more

Is the Swiss National Bank allowing its currency to appreciate?

It may be coincidence, but the three previous times we reported rumours of bank intervention in the forex markets, the level at which they appeared to intervene was about 0.684 EUR per CHF (1, 2, 3). Read more

The Swiss National Bank has issued a characteristic response to questions of market intervention to weaken the Swiss franc: “We’re not commenting on that,” a spokesman told Reuters. Some traders had reported market activity by the bank, although it’s not conclusive from the chart when compared to the spike last Tuesday, when similar rumours were reported.

The Swiss central bank has declined to comment following reports that it sold swiss francs for euros in a rare foray into Asian forex markets. The euro had been under downward pressure because of sovereign debt fears in several member states, hitting a 15-month low directly before the intervention. The Swiss National Bank has a stated policy of intervention to weaken the swiss franc while the threat of deflation persists.

Rising gold prices and recovering financial markets have caused a 10bn CHF profit for the Swiss central bank.

Switzerland has exceptionally large gold reserves for the size of its economy, at about 1,040 tonnes, or $35bn. Indeed, the country ranked second in the world in our gold security ranking. The rising value of gold contributed about 7.3bn CHF to the profits. Foreign exchange positions made up much of the rest, at about 2bn CHF. Read more

Swiss central bank governor Phillip Hildebrand has taken a somewhat political stance, defending the universal banking model in an interview with Swiss daily Le Temps. A form of the Glass Steagall Act would not work in Switzerland, he said: wealth management and commercial banking should not be split.

The former banker explained: “The universal banking model represents a form of risk diversification,” quoting difficult periods in the 1980s when one side of the bank had been able to bail out the other. He added that ultra-rich customers needed the full range of investment banking services, for instance to help with mergers and acquisitions involving companies they owned. Read more

Switzerland’s central bank said it will stop purchases of corporate bonds as it joins other countries in starting to withdraw emergency measures.

The Swiss National Bank, which announced plans to buy bonds in March, also held the three-month Libor target at 0.25 percent, as expected. The bank said it will continue to “act decisively to prevent any excessive appreciation” in the Swiss franc.