The Swiss central bank has increased the provisions for its currency reserves substantially. Here is why the monetary authorities decided the way they did.
The Swiss National Bank (SNB) has approved the allocation of 4.6 billion Swiss francs to the provisions of the currency reserves. The provisions will rise to 62.8 billion francs as a consequence, the bank said in a statement today.
The provisions for the currency reserves, which the bank uses to influence the strength of the Swiss franc, have been boosted substantially this year. Last year, the bank added 1.4 billion francs.
Low Average Economic Growth
The annual allocation in principal is determined on the basis of double the nominal average economic growth rate over the previous five years. The bank however has decided to also apply the rule that the minimum annual allocation has to be 8 percent. As Swiss economic growth averaged 1.9 percent over the past years, the new rule was applied this year.
«This is aimed at ensuring that sufficient allocations are made to the provisions and the balance sheet is strengthened even in periods of low nominal GDP growth,» the bank said in its statement today.
Monetary Policy Instrument
The SNB sets up provisions permitting it to maintain the currency reserves at a level necessary for monetary policy. The allocation to the provisions is made irrespective of the annual result.
