SNB Foreign-Currency Reserves Little Changed in August

The Swiss National Bank’s foreign-currency reserves changed little in August, as the franc held steady against the euro.

Holdings stood at 434.2 billion francs ($460 billion), from a revised 434.3 billion francs in July, the Zurich-based central 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 set a ceiling on the franc of 1.20 per euro two years ago today, 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.

SNB President Thomas Jordan said there is no reason to give up the cap on the franc yet, according to an interview with Berner Zeitung published earlier this week. The SNB cited the risk of deflation as its justification for the currency cap. It expects consumer prices to fall 0.3 percent this year.

Swiss consumer prices remained unchanged for a second month in August, according to data published today, after more than 1 1/2 years of annual declines.

The franc, which investors tend to buy as a haven, was little changed against the euro at 1.2388 at 11:32 a.m. in Zurich, and was also little changed against the dollar at 94.37 centime. In August, the Swiss currency also was little changed against the euro, according to data compiled by Bloomberg.

Defied Recession

Thanks in part to the cap, the Swiss economy has defied the recession that afflicted its euro-area neighbors. It expanded by 0.5 percent in the second quarter, compared with the first, above the median estimate in a Bloomberg survey of economists.

According to the forward-looking KOF barometer for August, the economy is expected to gain momentum. Even so, second-quarter industrial output declined 1.1 percent, compared with a year earlier, data published today also showed.

The Swiss National Bank forecasts growth of 1 percent to 1.5 percent this year. It will issue a fresh outlook at its policy assessment on Sept. 19.

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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