Monetary policy SNB buys foreign currency again for the first time since mid-2022

The SNB has bought foreign currency again for the first time since mid-2022. This marked a turnaround in interventions on the foreign exchange market, as the SNB has always acted as a seller on a large scale in recent quarters.

From January to March, the central bank has now bought foreign currency to the value of CHF 281 million. This is according to SNB statistics published on Friday.

In the final quarter of 2023, as in the previous quarters, foreign currencies were sold, amounting to CHF 22.7 billion. In 2023 as a whole, foreign currency sales amounted to just under CHF 133 billion.

Previously, the SNB had bought large quantities of foreign currency up to mid-2022 to prevent the Swiss franc from appreciating too much, for example in 2020 for just under CHF 110 billion.

Foreign exchange market interventions an important element of the SNB

The SNB has been using purchases and sales on the foreign exchange market for some time to support or weaken the franc depending on the current situation. This is because the major instrument - changing the key interest rate - would lead to potentially major and unwanted distortions on the foreign exchange market, particularly in the context of the interest rate environment of other central banks such as the ECB or the Fed.

In recent quarters, the SNB has sold foreign currency in order to deliberately strengthen the franc and thus keep imported inflation low. It has succeeded in doing so, as the consumer price index (CPI) has fallen back into the desired range. In May, annual inflation stood at 1.4 percent and the SNB itself expects inflation to remain below 2 percent over the next two years.

The effects of foreign currency purchases - along with other factors - left their mark on the exchange rate. This is because in the first quarter of 2024, when the SNB apparently returned to the buying side, the franc fell significantly against the euro, for example, and parity was almost reached again in the meantime.

The euro is now trading at CHF 0.96, well below this level again.

It was only at last week's interest rate cut that outgoing SNB Chairman Thomas Jordan emphasized that foreign exchange market interventions remain an important instrument of the SNB. And that they could certainly take place in both directions.

Young statistics

The SNB has only been announcing the amount of its interventions on the foreign exchange market for a good four years - namely the volume of the previous quarter at the end of each quarter.

Prior to this, the amount of foreign currency bought or sold by the SNB in the previous year was only published in spring. In between, experts used available balance sheet data and statistics to try to estimate intervention in the foreign exchange market.

SDA