In the third quarter, the Swiss National Bank (SNB) continued its policy of curbing imported inflation by selling foreign currencies.
From July to September, the SNB sold CHF 37.63 billion worth of foreign currencies, slightly less than the CHF 40 billion sold in the second quarter but more than the CHF 32.26 billion sold in the first quarter, according to a press release.
Until recently, the SNB's interventions in the foreign exchange market were aimed at reducing the size of its balance sheet, with foreign currency sales helping to combat rising import prices.
Swiss inflation slowed to 1.4% year-on-year in November from 1.7% in the previous month, thanks in part to the continued fall in oil prices. In mid-December, SNB President Thomas Jordan said the priority would no longer be to sell foreign currency, a "major change" in his communication compared to recent quarters.
The Swiss currency has also strengthened against the dollar. The dollar fell a few days ago, but it is still far from an all-time low. In August 2011, the US dollar fell to 70.7 cents. It first fell below parity in March 2008 when the financial crisis hit.
The Swiss currency, traditionally a safe haven, is strengthening as markets expect central banks to cut key interest rates as inflation appears to be under control.
For years, the SNB has been buying up foreign currencies on a massive scale to combat the strong franc. The turning point came in the second quarter of 2022 with the outbreak of the conflict in Ukraine.
For the first time in years, sales exceeded purchases by CHF 5 million, followed by CHF 739 million in the third quarter and CHF 27.33 billion in the fourth quarter. The peak was reached in the second quarter of 2023 at CHF 40.31 billion.
The SNB's policy shift could also have implications for other central banks. If the SNB, which is traditionally considered more conservative than other central banks, refuses to sell foreign currency to fight inflation, it could be a signal to other central banks that they may also change their policies.