Swiss Foreign Reserves Rise
The Swiss National Bank (SNB) has reported a slight rise of in foreign currency reserves for the month of April. Holdings have increased to 438.9Bn from 437.9Bn the previous month.
This is an important insight into SNB activity and particularly its ability to maintain the controversial minimum exchange rate policy. An artificial floor of EURCHF 1.20 was instigated by the Bank in September 2011 and has been an active monetary policy since. Concerns around the global banking system combined with geopolitical uncertainties created sufficient safe haven demand to drive the Swiss currency to near parity with the Euro as investors sought a stable home for their funds, this was despite near zero Swiss Franc interest rates.
A reigniting of Ukrainian tensions combined with persistently low global interest rates is keeping the pressure on the Swiss Franc and therefore the SNB. Despite the Franc being in demand the Swiss economy itself is struggling to regain its previous robustness.
Growth rates are rising but at a decelerating pace, current GDP growth readings are around 0.2% but projections are for this to rise to almost 2.0% by the end of 2015, this forecast has however been scaled back twice so far this quarter. Switzerland has full employment, the latest measure in fact showed an improvement in unemployment from 3.3% to 3.2%, this could lead to supply shortage problems as the country is relatively restrictive on the inward migration of labour.
Zero inflation rates do not bode well for a pick up in Swiss economic activity and the SNB’s monetary policy arsenal is near empty. The sluggishness in the global manufacturing sector is particularly hurting Switzerland, this is slowly picking up and should in time permeate to the Swiss economy.
Switzerland however is in the enviable position of holding a relatively small public debt, the current debt/GDP ratio of 36% provides a lot of scope for the country to ride out the current storms and wait for the global recovery to take hold.
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