Swiss National Bank Foreign Currency Reserves Rose to Record High in May

The foreign currency reserves of the Swiss National Bank have rose to a record figure in last month. Incidentally, in May, Swiss Franc, the major currency of Switzerland went down against not only USD, but against Euro too. Holdings have increased to a figure of 441.4 billion Swiss Francs. Incidentally, the revised figure for April was 436.1 billion Swiss Francs. The details were released through the official website of the Swiss National Bank. At the beginning of every month, based on the standards set by the International Monetary Fund, the holdings are calculated.

The Swiss National Bank, incidentally, committed to defend a ceiling of 1.20 per Euro in September, 2011. The bank has amassed foreign currency reserves equal to around 3-quarters of annual economic output of Switzerland to maintain the limit.

According to the economist of UniCredit Group, Alexander Koch, the increase was mostly done because of valuation effects and not because of new purchases. Koch added that the latest depreciation experienced by Franc has been pushed by a speculation that minimum exchange rate will be increased. This entire episode must have brought some sort of relief for the Swiss National Bank.

In last month, Swiss Franc went down by 1.3% against Euro and thereby broke through the 1.26 per Euro mark for the first time in the last 2 years on 22nd May. The President of the Swiss National Bank, Thomas Jordon stated that a shift in negative rates and cap were in the toolkit of the bank. On the other hand, Swiss Franc experienced a retreat of 2.5% against USD in May.

Koch added that he thinks chances of a corresponding action of the Swiss National Bank is pretty low given the current scenario. According to Koch, a higher minimum exchange rate target faces high resistance from the other central banks and can complicate a future exit as well. The negative interest rates, on the other hand, would probably increase the tailwind in the housing boom, as there are similar incidents in Denmark as well.

At the end of the 1st quarter of 2013, the Swiss National Bank held 48% of its total reserves in Euro, whereas the share for USD and Yen was of 27% and 9% respectively. The bulk is held in the highly rated Government bonds with only 15% invested in equities.