Tweet
http://www.reuters.com/article/idUSLDE63K0FP20100421
The Swiss National Bank's euro holdings soared in the first quarter, reflecting the extent of the central bank's interventions to fight the rise in the Swiss franc and highlighting the bumpy road to higher interest rates.
Euro holdings rose over 19 billion euros to 56.4 billion euros, the fastest pace since the SNB launched its interventions just over a year ago, the SNB's monthly report showed on Wednesday.
At the same time the monetary base increased for the first time in March since mid-2009.
Analysts said the large euro increase was a surprise given that the central bank had allowed the franc to rise since its December meeting.
The data also underscored the SNB's dilemma as the strong recovery of the Swiss economy was warranting higher interest rates sooner rather than later while the fight against the franc's strength worked against a policy normalisation.
"They cannot continue acting like they did in the first quarter," said Credit Suisse analyst Fabian Heller. "They are in a tricky situation if they really hike rates before the ECB."
So far, interest rate futures price in a first increase of the SNB's target for the 3-month franc LIBOR -- currently at 0.25 percent -- by December, with a significant chance of a rise at the September meeting. <0#FES:>
"We expect a hike in September, though much depends on the currency situation," Heller said.
The SNB's monetary base rose, though the year-on-year increase of M3 -- more relevant for future inflationary pressures -- picked up only slightly to 5.9 percent.
Euro holdings rose over 19 billion euros to 56.4 billion euros, the fastest pace since the SNB launched its interventions just over a year ago, the SNB's monthly report showed on Wednesday.
At the same time the monetary base increased for the first time in March since mid-2009.
Analysts said the large euro increase was a surprise given that the central bank had allowed the franc to rise since its December meeting.
The data also underscored the SNB's dilemma as the strong recovery of the Swiss economy was warranting higher interest rates sooner rather than later while the fight against the franc's strength worked against a policy normalisation.
"They cannot continue acting like they did in the first quarter," said Credit Suisse analyst Fabian Heller. "They are in a tricky situation if they really hike rates before the ECB."
So far, interest rate futures price in a first increase of the SNB's target for the 3-month franc LIBOR -- currently at 0.25 percent -- by December, with a significant chance of a rise at the September meeting. <0#FES:>
"We expect a hike in September, though much depends on the currency situation," Heller said.
The SNB's monetary base rose, though the year-on-year increase of M3 -- more relevant for future inflationary pressures -- picked up only slightly to 5.9 percent.