Wednesday, January 21, 2015

Swiss 3-Month LIBOR

Chart below of recent Swiss policy rate of 3-month libor:

So we can see how they really had to step on this rate overnight between the 14th and the 15th in order to meet the new policy mandate of the -0.75% +/- target announced that day.

And they keep pushing it down a bit ever since on the 15th it was -0.37 and yesterday -0.66

From the SNB statement last week:  Moved the target range for 3-month Libor further into negative territory, to between –1.25% and −0.25% (from the current range of −0.75% and 0.25%).

So they can push this rate to as low as -1.25% if they think (to them) this will help weaken the CHF.

What are the open market operational procedures that the SNB personnel have to go thru to collapse this rate like this?

Would these open market operations have the effect of somehow "bidding up" the simultaneously free-floated CHF currency vs. the major Swiss foreign reserve currencies ie the USD and the EUR?

Sell USD ... Sell EUR ... Buy CHF @ 3-month rate = -0.37%   ?

I'd assume that to adjust this policy rate down, they would have to bid up some sort of CHF financial asset at some point in the process.

They could just use new CHF reserves to buy CHF financial assets at the new policy rate I suppose; without having to sell any foreign reserves; at least I don't immediately see any reason to sell any foreign reserves at the same time...

So what we are looking for here is if the SNB open market operations required to adjust this Swiss 3-month term rate downwards directly resulted in the significant CHF currency exchange rate increase that happened concurrently within the CHF system.

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