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Analysis

Switzerland's foreign reserves rise to record levels

by OMFIF and National Bank of Poland

Wed 10 May 2017

Switzerland's foreign reserves rise to record levels Enlarge Chart loading Image

After falling in January, the Swiss National Bank’s foreign exchange reserves have risen sharply, pointing to its increased presence in the foreign exchange market. The foreign reserves(excluding gold) reached Chf688.9bn ($693bn) in March, up from Chf674.0bn in February. This will push the SNB balance sheet ever higher. The data for March suggests it will reach an unprecedented Chf763.2bn, well above GDP, which was Chf650.1bn in 2016.

The funds held on the SNB sight deposit soared too, surpassing Chf480.0bn on 21 April, possibly in response to increased political tensions ahead of the first round of the French presidential elections. In 2016 the SNB’s negative rate policy earned it profits of Chf1.6bn on its Swiss franc positions, of which Chf1.5bn originated from negative rates on sight deposits (originally imposed in January 2015).

Valuation changes on gold holdings enabled the SNB to register a gain of Chf3.9bn. However, the greatest contribution to SNB profits for 2016 came from gains on foreign currency positions (Chf19.4bn). All in all, the SNB registered a profit of Chf24.5bn, a turnaround from 2015 when it experienced its biggest loss ever of Chf23.3bn.

Like the rest of the world, Switzerland is experiencing a rise in inflation. However, at 0.6% in March there is still a lot for the SNB to do to reach its target of around 2%. In contrast to other central banks which have resorted to unconventional policies, the SNB appears to have plenty of room for manoeuvre and relies on the purchase of foreign assets. Foreign currency investments increased to Chf710.5bn in the first quarter of 2017 from Chf595.4bn in the previous year, with 42.2% held in euros, 34.4% in dollars, 7.6% in yen, 6.4% in sterling, 2.7% in Canadian dollars and 6.8% in other currencies.

Analysis by Pawel Kowalewski, Economic Adviser in the Bureau of Monetary Policy Strategy at the National Bank of Poland.