Switzerland delivers polite “Na” to IMF

The IMF, 3 days ago, to Switzerland —

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.  So what did the Swiss National Bank do today?  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.

“The SNB has unleashed a hail of bullets against the franc,” said Todd Elmer, a currency strategist at Citigroup Global Markets Inc. in New York. “It’s getting crushed here.” …

The Swiss National Bank is “implementing this intention” 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.  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.  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.  So the “safe haven” value of the CHF was working against the kind of adjustment that the rest of the economy needed.   No doubt there’ll be complaints that Switzerland is going for a competitive depreciation and tempting other floaters to do the same.  But note that the weakening CHF will actually help those overstretched eastern European mortgage borrowers whose loans are denominated in the currency.

2 thoughts on “Switzerland delivers polite “Na” to IMF

  1. Hi,

    Well we seem to have gone up around the same time, no harm in that. I would just underline that this is not simply an export directed intervention, but an anti deflation one, and that Bernanke himself has this on his list of “to do’s” if it should prove necessary.

    Now we need to see just how much pain Japan is willing to stand before doing likewise, basically CA surplus countries who are willing to simply print money for interventions are in a stronger position than CA deficit ones. And how long will China stand the pain? Lots of interesting situations only just round the corner.

    Either the next G20 will take concerted and decisive action or the thing will break lose at the edges. The G20 is unlikely to do anything of the kind, so…..

    Probably we’ll get some sort of watery statement about the need to do something about tax havens and the like. ….. Then watch out.

    Turning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,

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