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What do the SNB’s ongoing interventions mean? They prove that the current EURCHF exchange rates are not equilibrium market rates. The pair has been oscillating between the range of 1.1199 on north and 1.0732 on the south.
If exchange rates were in equilibrium rates, the intervention would be superfluous. The SNB is obviously still preventing an appreciation of the CHF, which markets would otherwise generate.
As long as it does so, we can say two things:
1) The appreciation potential of the CHF is extremely limited; but also
2) The Swiss franc is unlikely to depreciate noticeably versus the EUR because the SNB will not want to intervene in greater amounts than absolutely necessary.
The sideways movement of the CHF therefore makes sense under the status quo and is likely to continue for some time.
Thomas Jordan, President of the SNB Governing Board, said in 2015 the reason for abandoning the exchange rate floor was that the SNB would have had to intervene continuously to defend it – which would have further and further expanded the SNB’s balance sheet.
“This uncontrollable balance sheet expansion would have massively constrained the SNB’s future ability to act on monetary policy and jeopardised the fulfilment of the mandate over the long-term.” Thomas Jordan, President of the SNB Governing Board, added.
