This morning, just before 9:00, which is just before the opening of the stock floors on the Old Continent, the Swiss Franc finally intervened on the Swiss franc market. This activity was of a non-standard nature. The Bank of Switzerland has not decided on the simplest maneuver consisting in the purchase of foreign currencies by francs and without official information about this market, but on a much less standard one and it seems that the lowering of the level interest rates and a significant increase in liquidity on the franc market.
Whether these measures will be sufficient in the long run remains to be seen. For further events in the markets, however, it is very important that the Bank of Switzerland also clearly emphasized today that it is observing the situation very closely and that it will take further action against the strong franc if necessary.
Quick response from the currency and money market
The Swiss franc’s reaction to the Bank of Switzerland’s decision was immediate. After its announcement, it lost its value over 3% against the euro and the zloty at a very fast pace. It is important, because just 10 minutes before the arrival of this very important information, the Swiss currency was the strongest in history, both to Polish (CHF / PLN exchange rate at 8:47 max. 3.7464) and to the European one (also then the exchange rate EUR / CHF min. 1.0795).
The money market also reacted very quickly to SNB’s decision. 3-month rate Libor CHF, which is, among others benchmark for determining the interest rate on mortgage loans taken out in franc in Poland, which was just 0.175% yesterday, has fallen by more than 21% to 0.138% today.
Good SNB decision, it’s a pity it’s so late
Information about the decision of the Bank of Switzerland is positive news for all those in debt in Swiss currency. Each 10 groszy decrease of the CHF / PLN exchange rate means PLN 50 savings on each 500 franc installment, and a lower interest rate on the Swiss currency can also further reduce the installment amount expressed in francs.
It is a pity that such actions on the part of SNB came so late, because maybe the price of the franc against the zloty would not be nearly 3.75 this morning, but for example 3.50 or even less.
What did the Bank of Switzerland do?
The Bank of Switzerland decided to lower the target range for the 3-month Libor CHF to 0.00-0.25% from the current 0.00-0.75% on Wednesday and stressed that it would strive to keep it close to the level of 0.00%, not 0.25% as before.
In addition, SNB also announced: the planned increase in the level of deposits of banks held at the central bank by 50 billion francs, the cessation of rolling out repo operations and the sale of new money market bills, as well as the purchase of other treasury bills until the banks’ deposits reach the planned level.