Following our Fed follies from yesterday, the SNB issued their press release today via Reuters here.
The Swiss National Bank kept a charge on some cash deposits steady at -0.75 percent on Thursday, but said it would remain active in foreign exchange markets to weaken what it sees as a "significantly overvalued" franc.
Hard to tell what their specific policy (to them) would be to weaken the CHF; whether they think lower interest rates would do it or if they perhaps would bring back the peg at a level lower than current reported exchange rates.
In any case the SNB people have to see the CHF at significantly lower levels than current to "make money" this year via their holdings of foreign reserves mostly in EURs and USDs.
Seems like the Swiss export firms and their financiers at the member banks have been helping the SNB out in this regard by lowering the prices for Swiss export products in EUR and USD terms since the removal of the peg back in January; these actions leading to observed gains in the SNB forex portfolio.
If the SNB just does nothing, this might end up working out for them, it depends on how aggressive the export firms end up getting with their USD and EUR price reductions this year.
2 comments:
imo no..... ;)
I think they thought if they broke the peg while simultaneous put their rate at -0.75% vs. the ECB rate of -0.2%, then since their CHF policy rate was a half point LOWER than the EUR policy rate, that then the CHF would collapse vs the EUR and they would make a ton of money....
"lower rates weaken a currency" fallacy....
But if you were a member bank and just saw your CB stop agreeing to pay 1.2 CHF for a EUR why would you then pay 1.3? The Swiss CB has all the f-ing CHF in the world and they wont pay it so why should you?
imo they didnt and they only would bid 1.0 CHF for a EUR...
Now since then, the Swiss exporters have been cracking skulls domestically and reducing the real terms of the Swiss and this is being priced into the exchange rate... so it has come about back to where it was (USD just under 1.00) before the removal of the peg as their exports would have collapsed otherwise...
So its all f-ed up over there and imo the SNB is hoping the CHF somehow collapses from here so they make a killing in the forex.... (they are short CHF about 400B....)
I think they may get it if they just dont do anything and let the exporters keep doing it for them....
rsp,
"Is there anyone out there running policy who's not a total moron?"
I don't know of any.
They have their bible which gives them instructions and they follow the instructions. If complete chaos ensues they just parrot 'we followed the instructions'.
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