Sight balances at the Swiss National Bank (SNB) fell last week. It was the first drop in the week since January.
Specifically, deposits by the federal government and banks on June 5 were CHF 680.1 billion, around CHF 1.5 billion below the level of the previous week.
The last decline on a weekly basis was on January 13th. Since then, sight deposits have increased by around 95 billion, with weekly growth of up to 13.5 billion. For comparison: In the entire past year, the increase had only been around 10 billion.
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The development of sight deposits is an indication of whether the SNB is intervening on the foreign exchange market to weaken the franc. The central bank buys foreign currencies and credits the corresponding franc amount to the banks in their SNB accounts.
And the SNB recently admitted that it was intervening. Because the franc was coveted as a “safe investment port” in the Corona area and was becoming increasingly expensive. At the beginning of January, a franc cost just under CHF 1.09. In May this price dropped to 1.0464.
Far from 1.05
“There was probably a guideline value of 1.05 at the SNB, which should not be the rate,” says Caroline Hilb, Head of Investment Strategy and Analysis at St.Galler Kantonalbank. Finally, the SNB no longer had to defend this course.
In fact, the euro has recently recovered significantly against the franc. The price rose to around 1.09 within days. “At this level, there is no longer any need for intervention,” says Hilb.
The main reasons for the current “weakness of the franc” are the economic stimulus programs announced in Germany and especially in the euro zone. “This has reduced the risks of a new euro crisis and the euro has increased in value accordingly,” says CS economist Maxime Botteron. He therefore also assumes that the SNB has not had to intervene in the past week.
On the other hand, he and Hilb also do not assume that the SNB has already been able to throw foreign exchange on the market. “There are other reasons for the drop in current accounts,” said Botteron.
It is conceivable, for example, that the banks need less liquidity in connection with the corona loans. This can also be seen in current accounts and thus in sight deposits.
The experts are also cautious when it comes to forecasting the future development of the euro-franc exchange rate and the possible further interventions. At CS, the current forecast for the exchange rate is 1.10 in twelve months, which means that no further massive weakening of the Swiss franc is expected. And at St. Gallen KB, Caroline Hilb also sees little potential. “Anything above 1.09 would be a welcome surprise.”
On the contrary, she believes that the risks have not disappeared. “If the current positive market mood turns again, the Swiss franc should also become stronger again.”
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