SNB Might Take Aggressive Measures To Counter Currency Rise
Market analysts are expecting that the Swiss National Bank (SNB) which is Switzerland’s national bank will soon take aggressive action to regulate the steady increase in the value of the Swiss currency. Triggered by the recent volatility, the Swiss franc which is viewed by the market as a safe haven currency along with the Japanese yen and the euro has been rising rapidly over the past year.
The SNB has been struggling with a strengthening Swiss franc that hurts its exporters. The bank has not taken any active measures to drop its value after it decided in January 2015 to end the policy of a cap on the value of the Swiss Franc against the euro. It has so far restricted its response to interventions in the foreign exchange market and the issuance of verbal warnings.
Recent remarks by Thomas Jordan, SNB chairman however indicate that more aggressive action by the bank is likely if the situation demands it. Such measures can include a change in the levels of exemptions from negative interest rate for deposits held at the central bank.
His statements come at a time when there are expectations that the European Central Bank (ECB) will announce in a meeting scheduled for next week interest rates that are further into the negative territory to loosen the monetary situation in Eurozone. Analysts across board have taken the statements by Mr. Jordan to indicate that the bank is highly concerned about the situation.
In a statement, Peter Rosenstreich, market analyst for the online bank Swissquote said,
The signal was a public indication the SNB is worried about the direction of EURCHF. This has put traders experienced with the SNB on high alert.
Switzerland’s banks have not passed on negative interest rates to their customers until now due to concerns that it might lead to withdrawals by customers who prefer to retain their savings in cash rather than pay banks for holding it. To maintain profits, banks have instead raised mortgage interest rates. Any new action by the SNB could result in disrupting this trade-off.
Investment analysts from Barclays believe that the statements made by Mr. Jordan could mean that SNB might take the extreme action of charging negative interest rates on all sight deposits. Another analyst Jane Foley who works as a forex strategist at Rabobank said that since it is widely accepted that the Swiss franc is highly overvalued, the Swiss Central Bank has leeway to act. She added that though the central bank cannot stop the franc from being a safe haven, it will move to keep it stable and within safe limits.