SNB May Need to Buy Euros Daily to Defend Franc Cap, UBS Says
Nov. 20 (Bloomberg) — The Swiss National Bank may have to purchase euros on a daily basis and introduce negative deposit rates as investors push the franc toward its 1.20-per-euro cap, according to the nation’s biggest bank, UBS AG.
Price action over the past few days indicates the central bank has been purchasing the 18-member currency to defend the cap, UBS strategists including Zurich-based Beat Siegenthaler, wrote in an e-mailed note today. Sight deposits data, set to be published on Nov. 24, will give the first indication of whether this is the case, the note said.
Traders are unwilling to buy the euro against the franc “because the tail risk of the floor breaking is looming too large,” the strategists wrote. “As a result, the cross could become trapped at current levels with the SNB prompted to be active on a daily basis. Negative deposit rates might be the only way out of the situation as they would give traders renewed incentives to sell Swiss francs.”
Switzerland’s currency was little changed at 1.20124 francs per euro as of 2:24 p.m. London time.
The franc yesterday appreciated through 1.2010 per euro for the first time since September 2012, when the SNB says it last sold its currency to enforce the limit. The cap has been breached only once since its implementation more than three years ago, when the franc strengthened to 1.19995 per euro on April 5, 2012.
The SNB’s Libor target has been at zero since August 2011. The central bank’s next policy decision is due on Dec. 11.
To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Keith Jenkins, Todd White
