Bloomberg News

Zurbruegg Says Managing SNB FX Reserves Major Challenge

November 09, 2012

Swiss National Bank Governing Board member Fritz Zurbruegg said managing the central bank’s foreign- currency reserves of 424.4 billion francs ($448 billion) is a “major challenge.”

“The SNB takes care to ensure that its investments do not disrupt the markets,” Zurbruegg said at an event in Geneva late yesterday. “We are aware that the huge amounts we have under management could impact significantly on market prices.”

The SNB, led by President Thomas Jordan, has been forced to pile up unprecedented currency holdings to defend a franc ceiling of 1.20 per euro introduced in September 2011. While reserves fell last month, they still amount to almost 70 percent of the country’s gross domestic product.

The franc has weakened about 0.4 percent versus the euro over the past three months after the European Central Bank pledged to buy government bonds of distressed nations in tandem with the region’s rescue fund to help fight the fiscal crisis. It traded at 1.2063 versus the euro at 10:12 a.m. in Zurich and was at 94.74 centimes against the dollar.

Zurbruegg said policy makers “are convinced” that the franc policy is “effective, and we shall continue to pursue it with the utmost determination.” The SNB will hold its next monetary assessment on Dec. 13.

‘Market Perception’

“In light of the softening Swiss growth momentum of late, a change in the lower boundary in euro-franc at the forthcoming quarterly Monetary Policy Assessment would be a major surprise,” Reto Huenerwadel, an economist at UBS AG in Zurich, said in an e-mailed note today. He also “confirmed market perception of a traditionally very risk averse investor.”

The SNB said on Oct. 31 that the share of euro holdings was at 48 percent of reserves at the end of the third quarter, down from 60 percent at the end of June. The share of dollars, pounds, Canadian dollars and yen increased in that period.

Government bonds in their own currencies accounted for 83 percent of the SNB’s assets at the end of the third quarter, with equities at 12 percent. Fixed-income assets with a AAA rating accounted for 86 percent of holdings.

Market Impact

The central bank’s asset management is based on “security of investments and their liquidity,” according to Zurbruegg. It also makes sure that volumes placed on markets don’t have “any perceptible” impact and chooses “major international currencies with a liquid market,” he said.

“The SNB is constantly assessing ways to improve the diversification of its investments,” Zurbruegg said. “We actively analyze and monitor new asset classes and different currencies in both advanced and developing economies in order to reduce our risk concentration over time.”

The euro is the SNB’s “principal investment currency,” according to Zurbruegg. About 12 percent of investments are in equities, the highest since 2004, he said, adding that the Zurich-based central bank doesn’t buy stocks in Swiss companies.

The SNB started boosting foreign-currency holdings in March 2009, when policy makers began their first round of purchases to stem the franc’s ascent. Investors have been seeking the Swiss currency as a haven from the global turmoil.

To contact the reporters on this story: Zoe Schneeweiss in Zurich at zschneeweiss@bloomberg.net; James Kraus in Geneva at jkraus2@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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