Central bank acts again to cool franc

The Swiss National Bank (SNB) has flooded francs into the market for the second time in a week in an effort to curb the relentless rise of the Swiss currency.

The SNB announced on Wednesday that it would inject a further SFr40 billion ($55 billion) of liquidity. The move came a day after the franc saw its biggest one-day gain against the dollar in 30 years.

The supply of francs from the SNB  has now increased to SFr120 billion ($166 billion) from SFr30 billion a week ago. The central bank will not directly buy foreign currencies, but will swap them for francs.

Last week, the central bank pumped an extra SFr50 billion into the currency markets. It also cut interest rates by 50 basis points to a new target range of 0.0 to 0.25 per cent.

The latest move is being viewed as a last-ditch attempt by the SNB to arrest the rise of the franc which is approaching parity with the euro and trading at record lows against the dollar.

The strengthening franc has increased the cost of Swiss goods abroad, hitting the export industry. The tourism sector has also been hurt as Switzerland becomes a more expensive place to visit.

The SNB’s attempt to arrest the rise of the franc by buying massive quantities of euros last year had little impact and left the central bank with foreign exchange losses of more than SFr35 billion.