The end of Swiss foreign exchange purchases

Inflation in Switzerland is 3.5 percent.

Zurich/Bern. The Swiss National Bank (SNB) has ended the epoch with intensive foreign exchange market interventions to weaken the franc. The central bank sold five million francs worth of foreign exchange in the April-June period, according to SNB data released on Friday. Since the peg to the euro was abolished in 2015, the SNB had spent a total of CHF 353 billion, mainly on buying dollars, yen and euros, in order to curb the appreciation of the domestic currency, which is particularly sought after in times of crisis.

The end of foreign exchange purchases is the SNB’s second important change of course in a short period of time, after the central bank last lifted negative interest rates after almost eight years to combat rising inflation. “The SNB is now operating in a new environment,” says Elias Hafner, foreign exchange strategist at Zürcher Kantonalbank.

“The SNB’s willingness to intervene is much lower now.” At its peak in 2020, the SNB spent CHF 112 billion to stem inflows from investors unsettled by the corona pandemic who were buying the franc higher . Since then, however, the central bank’s focus has shifted from the franc to tackling inflation, which hit a 29-year high in August. Even if inflation in Switzerland is modest by international comparison at 3.5 percent, it is well beyond the SNB’s price stability target of zero to two percent per year. Higher inflation abroad has dampened the impact of the strong franc on Swiss exporters. At the same time, the strength of the currency is cushioning the higher prices of imported products. (ag.)

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