Photo: Steve Jurvetson on Flickr
The Swiss National Bank announced new measures (pdf) today meant to control the rapid rise of the franc, but their proposed steps are likely to do little apart from keeping currency traders on their toes.A traditionally conservative SNB has watched the franc skyrocket lately, to the detriment of the Swiss economy.
The SNB proposed two immediate measures to curb the rising franc: injecting liquidity into the market and increasing banks’ sight deposits from CHF 120 billion to CHF 200 billion. The bank said it will continue to purchase outstanding SNB bills and Forex swaps, in an attempt to decrease the value of the franc in relation to foreign currencies.
Though such steps could succeed in lowering money market interest rates in the short term, the SNB’s decision will do little to change the franc’s designation as a safe haven currency.
Markets have responded accordingly, with a sharp drop in the USD/CHF after the announcement.
rumours of a peg were admittedly overblown, and it remains to be seen if the SNB is as committed as it professes to be to stemming the francs rise. Currency traders will be on the lookout for the SNB to take more drastic measures in the future.