Swiss National Bank boosts forex sales in first quarter

THE Swiss National Bank (SNB) sold 32.3 billion Swiss francs (S$48.6 billion) worth of foreign currencies in the first quarter of 2023, it said on Friday (Jun 30), as the central bank stepped up its campaign to bolster its safe-haven currency to fight inflation.

It was the fourth quarter in a row of forex sales and represented an increase from the 27.3 billion francs sold in the last three months of 2022.

The SNB has recently been selling foreign currencies to strengthen the franc, whose high value has helped to dampen inflation caused by more expensive imports.

Although Swiss inflation ebbed to 2.2 per cent in May from 2.6 per cent in April, it has long remained outside the SNB’s price stability target of 0-2 per cent.

The reading for June – due on Monday – is expected to be 2.2 per cent, according to Refinitiv forecasts.

The central bank last week said its current focus was on selling foreign currencies, and this tactic would likely continue.

Florian Germanier, an economist at UBS, also thought the SNB would continue to use interest rates to check inflation.

“As long as domestic inflation risks remain and inflation in the eurozone and the US – Switzerland’s most important trading partners – is above the central bank’s target level, we expect the SNB to continue to sell FX reserves to shield Switzerland from importing foreign inflation,” he said.

Although helpful in limiting the impact of more expensive food imports and energy prices, the strategy could become less effective as inflation becomes more domestic and broad based.

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Selling foreign currencies to bolster the franc is a shift from the SNB’s previous practice of buying foreign exchange to weaken the national currency.

In contrast to the forex sales during the first quarter of this year, the SNB bought foreign currencies worth 5.74 billion francs a year earlier. REUTERS