The Swiss National Bank (SNB) today, in an unprecedented move, utilised a large array of non-standard instruments to ease monetary conditions. As expected, the SNB lowered the target band for the 3M LIBOR to 0.00 - 0.75 % and intends to secure 3M LIBOR around 0.25 % - i.e. a 25bp reduction in the policy rate. More importantly, the SNB announced that it will (i) increase liquidity substantially by engaging in additional repo operations, (ii) buy Swiss franc bonds issued by the private sector, and (iii) intervene in the foreign exchange market, buying foreign currency to prevent a further appreciation of the Swiss franc.
As a result, the Swiss franc weakened significantly and EUR/CHF jumped more than 3% higher, breaking shortly above 1.53 (chart 2). This is the first time the SNB has intervened in the currency market since 1995. The intervention is not because SNB considers the Swiss franc to be out of line with fundamentals, but rather that the large appreciation of the franc during the credit crisis has brought about an "inappropriate tightening of monetary conditions".
