Switzerland’s FX Reserves Held Steady in July

The Swiss National Bank’s foreign-currency reserves remained little changed in July.

Holdings stood at 434.9 billion francs ($470 billion), from a revised 434.8 billion francs in June, the Zurich-based Swiss National Bank said on its website today. The holdings, calculated according to International Monetary Fund standards at the beginning of each month, hit an all-time high of 444 billion francs in May.

The SNB, which committed to defend a ceiling of 1.20 per euro in September 2011, has amassed foreign-currency reserves equal to about three-quarters of Switzerland’s annual economic output as a result of its efforts to protect the limit.

Abolishing the ceiling is a way off, SNB President Thomas Jordan said at the central bank’s most recent policy review on June 20. The SNB cited the risk of deflation as its justification for the currency cap, and it expects consumer prices to fall 0.3 percent this year.

Consumer prices unexpectedly remained unchanged from a year earlier in July after 21 months of declines. Economists expected an annual decline of 0.1 percent, according to the median of 15 estimates in a Bloomberg News survey.

Last month, the franc lost about 0.2 percent versus the euro and appreciated 2 percent against the dollar, according to data compiled by Bloomberg.

Domestic Demand

Even with the recession in the neighboring euro area, the Swiss economy has continued to grow and the SNB forecasts an economic expansion of between 1 percent and 1.5 percent this year.

Domestic demand is the biggest growth driver, accounting for about 57 percent of output last year. The KOF barometer, which seeks to predict the economy’s direction about six months ahead, signaled brighter prospects for the economy, when it rose for the fourth month in July.

At the end of the second quarter, the SNB held 48 percent of its reserves in euros, 27 percent in dollars, and 9 percent in yen. The bulk is held in top rated government bonds with 15 percent in equities, an allocation little changed compared with the first quarter.

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