The Swiss National Bank repeated on Monday its pledge to intervene on the currency markets to curb a rise in the franc after safe-haven inflows driven by the Ukraine conflict briefly pushed the currency above parity with the euro.
The euro/franc exchange rate fell to 0.9910 in Asia overnight, as investors sought refuge in the Swiss currency. The valuation is the highest level for the franc since January 2015 when the Swiss central bank scrapped its peg to the euro.
“The Swiss franc is currently sought after as a refuge currency, along with the U.S. dollar and the yen,” the central bank said in a statement.
“The Swiss franc continues to be highly valued,” it added. “The SNB remains prepared to intervene in the foreign exchange market if necessary.”
The verbal intervention is an unusual move by the central bank, which last gave a separate statement indicating its concerns about the francs appreciation after Britain voted to leave the European Union in 2016.
“While the SNB has been rather relaxed about the appreciation of the Swiss franc in the last months … a drop below parity could change its attitude because parity is also a psychologically important threshold,” said UBS economist Alessandro Bee.
The SNB said the increased valuation of the franc, which is a danger for Switzerlands export-dominated economy, also recognised the inflation differentials between Switzerland and other countries.
Swiss consumer price inflation rose to a higher-than-expected 2.2% in February, its highest level since 2008 but well below the 5.8% level in the neighbouring euro zone, Switzerlands biggest export market.
The SNB on Monday said it said it looked at the overall currency situation rather than individual currency pairs.
Sight deposit data, a proxy for the SNBs foreign currency purchases, showed a rise of just 500 million francs last week, indicating a small amount of intervention.
“I expect the SNB to fight this appreciation only moderately – because it cannot change the environment for investors that just seek safety,” said J. Safra Sarasin economist Karsten Junius.
Russias invasion of Ukraine, which it calls a “special operation” has introduced uncertainties as the global economy looks to move towards monetary policy normalisation, SNB Governing Board Member Andrea Maechler said in an interview published on Saturday.
Her comments indicated the crisis had delayed SNB plans to retreat from negative interest rates and foreign currency purchases which have been the foundation of its expansive approach.
The central bank gives its next monetary policy update on March 24.
(Reporting by John Revill; Editing by Michael Shields and Catherine Evans)