After selling a modest amount of foreign exchange in the second quarter, the Swiss National Bank (SNB) drastically stepped up its currency sales in the third quarter.
The SNB sold 739 million Swiss francs ($754 million) worth of currency in the third quarter, according to figures released Friday by the central bank. It stepped up the pace of sales from the second quarter when it sold 5 million francs, a stark contrast to the 5.7 billion it bought during the first three months of the year.
At its December 15 monetary policy meeting, the SNB raised its benchmark interest rate a further 50 basis points to 1 percent to combat inflation. In November, consumer inflation in Switzerland was 3 percent annually, low compared to major European economies, but still above the 2 percent target of the SNB.
Although the SNB omitted language in its statement following the decision to raise rates the Swiss franc was overvalued, it did say in order t«o provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary.»
At an event in November, SNB President Thomas Jordan explained that since 2020, the SNB has responded to inflationary pressures first with foreign exchange interventions and then with interest rate hikes. The institution considers both channels as legitimate instruments for implementing its monetary policy, he said.
Volatile Imported Inflation
SNB Economic Director Carlos Lenz pointed to a strong appreciation at the beginning of the pandemic, which was absorbed by extensive foreign exchange interventions. The SNB had to monitor the exchange rate, he said, because the franc was seen by many as a safe haven, and imported inflation was more volatile than domestic inflation in Switzerland.
