The IMF, 3 days ago, to SwitzerlandÂ —
Under the current circumstances, direct foreign exchange intervention should be aimed only at countering disruptive short-term pressures on the currency.
This followed an acknowledgment that monetary policy measures were probably headed towards zero interest rate and quantitative easing type measures.Â So what did the Swiss National Bank do today?Â The expected monetary policy easing, plus a blatant direct foreign exchange intervention —
The franc plunged against all of its major counterparts as the Swiss National Bank began buying currencies in its first solo intervention in foreign-exchange markets since 1992.
â€œThe SNB has unleashed a hail of bullets against the franc,â€ said Todd Elmer, a currency strategist at Citigroup Global Markets Inc. in New York. â€œItâ€™s getting crushed here.â€ …
The Swiss National Bank is â€œimplementing this intentionâ€ to buy foreign currency to weaken the franc, spokesman Werner Abegg said when asked whether the SNB was already intervening. The central bank also halved its target lending rate to 0.25 percent and said it will buy corporate bonds.
A few quick reactions.Â Hopefully there won’t be any Casablanca style professions of shock that the Swiss, having an independent exchange rate policy, might choose to use it.Â And unlike Canada, where the commodity effects are strong enough to deliver a C$ depreciation when the economy weakens, Switzerland was in the strange position of a strengthening exchange rate even as its one of most important sectors — finance — takes a huge hit.Â So the “safe haven” value of the CHF was working against the kind of adjustment that the rest of the economy needed.Â Â No doubt there’ll be complaints that Switzerland is going for a competitive depreciation and tempting other floaters to do the same.Â But note that the weakening CHF will actually help those overstretched eastern European mortgage borrowers whose loans are denominated in the currency.