Swiss National Bank ready to put the brakes on rising franc

The euro briefly sank below parity versus the Swiss franc for the first time in seven years on Monday. Martin Ruetschi

Switzerland’s central bank has renewed its pledge to intervene in the currency markets to halt a rise in the franc after safe-haven inflows caused by the war in Ukraine briefly pushed the currency above parity with the euro.

The euro/franc exchange rate fell to 0.9910 in Asia overnight. This is the highest level for the franc since January 2015 when the SNB unexpectedly scrapped its cap on the franc’s value against the euro.

“The Swiss franc is currently sought after as a refuge currency, along with the U.S. dollar and the yen,” the SNB said in a statement.

“The Swiss franc continues to be highly valued,” it added. “The SNB remains prepared to intervene in the foreign exchange market if necessary.”

The increased valuation of the franc is a danger for Switzerland’s export-dominated economy. The European Union is Switzerland’s biggest trading partner. The Alpine nation exported €108 billion ($118 billion) worth of goods to the EU in 2021, mostly chemicals, medical products, machinery, instruments and watches. 

In an interview with the Schweiz am Wochenende newspaper on Saturday, SNB Governing Board Member Andrea Maechler said the bank was following the situation in the foreign exchange market very closely and is “ready to intervene if necessary.”

“At the beginning we noticed that the appreciation was rather small compared to the global uncertainties,” Maechler said. “That has changed over the course of the week.” 

Maechler said inflation had accelerated in Switzerland, particularly prices for raw material and food, but the SNB expects global inflation to “normalise” and eventually fall over the medium-term. 

She said not to expect any reversal of the SNB’s negative interest rates, adding that any decision to do so “will not be decided on the fly”.

The SNB published its annual resultsExternal link on Monday. The central bank reported a profit of CHF26.3 billion ($28.3 billion) for 2021 (2020: CHF20.9 billion). The profit on foreign currency positions amounted to CHF25.7 billion, it said.

Some CHF6 billion of SNB profits will be distributed to the federal government and the cantons.