Swiss National Bank: 'We are ready to take action against the super franc'

"In light of the ongoing conflict in the Middle East, our readiness to intervene in the foreign exchange market has increased". This is the key phrase in the quarterly review of the Swiss National Bank (SNB). The Swiss central bank is prepared to increase its purchases of foreign currencies, usually mainly euros and dollars, in order to curb the excessive appreciation of the franc. The Swiss currency has long been very strong and tends to appreciate further when geopolitical and economic tensions rise. For some investors, it continues to be a safe haven.

The marked strength of the Swiss franc has the advantage that it makes imports cheaper and encourages low inflation, but it has the disadvantage that it creates additional obstacles for exports, an important item for the Swiss economy. After the phase of high global inflation, during which the strong franc was very helpful, the central bank led by Martin Schlegel is now back to dealing with the strength of the franc, which has become excessive again. The main instruments to curb the currency are interest rates and foreign currency purchases. The reference rate is already at 0% and lowering it would mean going into negative interest rates, a mechanism that the SNB has adopted with only partial success in past years and that has created problems for the financial sector and savers. For the time being, the SNB therefore tends not to go below 0% and operate on foreign currencies.

The institution's stance yesterday helped the franc lose a few fractions. But the Swiss currency's levels remain very high indeed, its gains compared to a year ago are over 4% against the euro and over 9% against the US dollar. The SNB's line is once again confronted with the market wind in favour of the franc.