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It's official. Quantitative
easing has begun, just not where you might have expected. QE is underway in
Switzerland, by the Swiss National Bank, not the US by the Fed.
Swiss National Bank Targets LIBOR "Close to Zero as Possible"
The Swiss National Bank Press release says Swiss National Bank takes measures
against strong Swiss franc
The
Swiss National Bank (SNB) considers the Swiss franc to be massively
overvalued at present. This current strength of the Swiss franc is
threatening the development of the economy and increasing the downside risks
to price stability in Switzerland. The SNB will not tolerate a continual
tightening of monetary conditions and is therefore taking measures against
the strong Swiss franc.
Effective immediately, the SNB is aiming for a three-month Libor as close to
zero as possible, narrowing the target range for the three-month Libor from
0.00-0.75% to 0.00- 0.25%. At the same time, it will very significantly
increase the supply of liquidity to the Swiss franc money market over the
next few days. It intends to expand banks' sight deposits at the SNB from
currently around CHF 30 billion to CHF 80 billion. Consequently, with
immediate effect, the SNB will no longer renew repos and SNB Bills that fall
due and will repurchase outstanding SNB Bills, until the desired level of
sight deposits has been reached.
Since the SNB's last quarterly monetary policy assessment, the global
economic outlook has worsened. At the same time the appreciation of the Swiss
franc has accelerated sharply during the last few weeks. Consequently, the
outlook for the Swiss economy has deteriorated substantially.
The SNB is keeping a close watch on developments on the foreign exchange
market and will take further measures against the strength of the Swiss franc
if necessary.
Emergency Central
Bank Cut Outside Scheduled Quarterly Meetings
Via email (no direct link) Barclay's Capital reports "SNB moves to QE
to counteract appreciating CHF, and cuts official rates"
This
morning the Swiss National Bank (SNB) announced that it will, over the coming
days, increase the Swiss monetary base (that is, banks' sight deposits held
with the SNB) from currently around CHF30bn to CHF80bn - a measure that we
argue can rightly be described as "quantitative easing" (QE). In
effect, the bank will repurchase outstanding SNB Bills. The measure aims to
bring the 3-mth Swiss Libor target rate to "as close to zero as
possible", and the bank will also narrow the target range for the 3-mth
Libor from 0.00-0.75% to 0.00-0.25% - so the bank has therefore also cut
official rates today (thus outside of a regular quarterly meeting). The
increase in the monetary base is not necessarily going to increase the SNB's balance
sheet; rather, we believe it is more likely to result in a restructuring of
its liabilities: banks' sight deposits held with the SNB increase, while
liabilities in the form of, say, SNB Bills decline.
We believe the action taken by the SNB is clearly driven by the negative
consequences for the Swiss economy and the financial sector of an environment
of sagging worldwide growth, accompanied by the CHF exchange rate having
climbed to record highs (in nominal and real terms) vis-à-vis major currencies:
"Since the SNB's last quarterly monetary policy assessment, the global
economic outlook has worsened. At the same time the appreciation of the Swiss
franc has accelerated sharply during the last few weeks. Consequently, the
outlook for the Swiss economy has deteriorated substantially."
Is it any wonder gold
is soaring?
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