The Swiss National Bank hiked its foreign currency interventions to their highest level since the Brexit referendum in 2016, data on Monday indicated, showing the central bank’s determination to counter the Swiss franc’s coronavirus-driven rise.
Swiss sight deposits rose by nearly 6 billion Swiss francs last week, supporting the SNB’s statement it is escalating its currency market interventions to slow the rise of the safe-haven currency.
Total sight deposits, which include other deposits on sight in Swiss francs, rose to 608.826 billion Swiss francs ($617.41 billion) from 602.992 billion francs in the previous week.
The 5.8 billion franc increase was the biggest this year and followed an increase of 4.4 billion francs a week before and 2.78 billion francs at the start of March.
The SNB said last week it was escalating its foreign currency purchases to stem the rise in the franc, which has appreciated as investors sought safe assets while stock markets have plunged during the coronavirus pandemic.
The franc has risen to its highest level against the euro EURCHF= in four-and-a-half years as a result, threatening Switzerland’s export-reliant economy.
The central bank declined to comment on Monday, but last week said it was “intervening more strongly in the foreign exchange market to contribute to the stabilization of the situation”.
The rise in sight deposits showed the SNB was clearly increasing its activity, said Alessandro Bee, an economist at UBS.
“This is the strongest weekly rise since mid-2016, after the Brexit vote, and is a clear sign of intervention,” Bee said.
Sight deposits, a proxy for the SNB’s interventions, increased by 6.3 billion francs after the Brexit vote in June 2016.
The central bank had no theoretical limit on how much it could spend, but it would prefer not to spend more than 10 billion francs a week for several weeks, Bee said.
The interventions also seems to be slowing the franc’s appreciation, with the SNB able to avoid cutting its -0.75% interest rate further into negative territory at its policy update last week.
“Interventions seem to be working as the Swiss franc is not passing the 1.05 barrier against the euro, and I believe the SNB will continue to defend that barrier,” said Karsten Junius, an economist at J.Safra Sarasin.
“There is no limit for the SNB and its reaction will continue to depend on the severity and length of the coronavirus crisis.”