The Swiss National Bank (SNB) announced its monetary policy decision and economic assessment yesterday. As a rule of thumb for currency market participants, whenever the SNB talks, the market listens.
Unlike other central banks, the SNB sets the monetary policy quarterly – not monthly like the Reserve Bank of Australia, the European Central Bank or the Federal Reserve of the United States. For this reason, anyone interested in what is happening to the Swiss Franc (CHF) must consider the SNB’s statement and official position.
While no changes were expected at this meeting, the bar was raised by two events that happened since the last one. First, the CHF strengthened across the FX dashboard, gaining literally against every other fiat currency. In 2020, it became the strongest currency. Second, the U.S. Treasury Department included the SNB on its list of currency manipulators.
What Did the SNB Do at the December Meeting?
The central bank did not change its monetary policy – it left the policy rate and interest on sight deposits at -0.75%. In other words, it maintained the expansionary monetary policy.
Naturally, it took note of the U.S. Treasury Department message, but it vowed to intervene more strongly in the foreign exchange market. This is the logical and appropriate response, considering the fact that Trump’s administration is about to leave and, with it, the head of the U.S. Treasury too. Janet Yellen, the former Fed’s Chair, will be the new head of the Treasury.
Another interesting thing that the SNB announced was its pledge to expand its exclusion criterion on its investments. More precisely, the SNB is more than just a regular central bank. It functions more like a hedge fund, with investments throughout the world, and with shares listed on the national stock exchange. With yesterday’s announcement, the SNB will exclude all companies active in the mining of coal from its portfolios. This is a strong message to environmental-friendly investing, and a path other central banks will surely follow.
As for the strong CHF, one can only wonder what would have happened with the CHF should the SNB not intervene to slow down its appreciation. This is a central bank having the lowest interest rate in the world (-0.75%) and yet having to intervene to slow down its currency’s strength.