Swiss National Bank Sells 132.9Billion Francs

Key Points

• Swiss National Bank (SNB) sold foreign currency worth 132.9 billion Swiss francs, significantly rising from the previous year.
• The sales helped appreciate the Swiss Franc, align with inflation differentials, and keep inflation within the target range.
• After achieving its goal of monetary conditions, the SNB shifted its focus away from foreign currency sales.

In an unprecedented move, the Swiss National Bank (SNB) sold foreign currency worth 132.9 billion Swiss francs ($149.51 billion) in 2023, a dramatic escalation from the 22.3 billion francs sold in 2022. This stabilized the Swiss Franc, aligning it with inflation against major currencies, thus keeping inflation within the SNB’s 0-2% target.

Policy Pivot: SNB Ends Foreign Currency Sales

The SNB’s foreign currency sales crucially prevented the Swiss Franc’s real-term weakening, thus tightening monetary conditions within Switzerland. This manoeuvre played a pivotal role in the latter part of the year when the inflation rate saw a notable decrease, underscoring the bank’s capacity to influence economic stability through its policy decisions. The SNB, signalling a new phase, announced a policy shift to pivot from foreign currency sales after achieving its goals.

Inflation Forecast: SNB Targets 1.9% for 2024

As the SNB schedules its next monetary policy decision for Thursday, market participants and analysts await further insights. The USD/CHF rate, influenced by higher US Treasury yields, showed an uptick, touching 0.8890 during Asian trading hours on Tuesday. Moreover, the broader financial landscape, including expectations around the Federal Reserve’s policy and bond market trends, suggests a cautious yet observant stance from investors and policymakers alike. The SNB forecasts a 1.9% inflation rate for 2024, currently under 1.2%, with a consumer price index rise in February. The central bank’s next moves are of critical interest, especially with a 29% probability of a policy rate cut potentially weakening the Swiss Franc.

Navigating Global Pressures: SNB’s Balancing Act

The SNB’s actions occur within a complex tapestry of global economic resilience and challenges. As selling pressure in bond markets increases due to a resilient US economy, expectations for fewer rate cuts this year. In this context, the SNB must balance controlling inflation, managing the Swiss Franc’s value, and heeding global economic cues. Therefore, the upcoming policy meeting will likely offer insights into the SNB’s ongoing balancing act amid changing economic conditions.