ZURICH (Reuters) - The Swiss National Bank is ramping up its market interventions to weaken the Swiss franc, data on Monday indicated, as it so far shies away from additional interest rate cuts to check the currency’s coronavirus-driven surge.
Total sight deposits - a proxy for central bank interventions - increased to 598.5 billion Swiss francs ($645 billion) last week from 595.8 billion francs a week earlier.
The increase followed a 3.5 billion franc rise in the week before.
The interventions come after the franc has hit its highest levels against the euro EURCHF= in four and-a-half years, and reached its peak against the dollar CHF= since March 2018. The franc traded at about 1.059 francs to the euro at 0930 GMT.
“The SNB has been relying on currency interventions to prevent the rise of the franc, and they’ve drawn a line around the 1.06 level,” said UBS currency strategist Thomas Flury. “They don’t want it to go much lower than that.”
Sight deposits, or cash that commercial banks hold with the Swiss National Bank, surged following the central bank’s sudden move in 2015 to abandon the cap against the euro.
The increasing activity signals the SNB is favoring interventions rather than cutting interest rates as its main tool to weaken the franc.
The central bank declined to comment.
The interventions point to the SNB trying to prevent a rapid and sustained rise of the currency sought by investors as a safe haven amid the coronavirus uncertainties.
Chairman Thomas Jordan has so far avoided matching cuts by the U.S. Federal Reserve, Bank of Canada and Reserve Bank of Australia to support their economies against a coronavirus-related downturn because the Swiss economy has so far been relatively robust.
The SNB would prefer to wait until its own quarterly policy review on March 19 before deciding on cutting its rates from the current -0.75%, the lowest in the world.
But the European Central Bank, which meets a week earlier, could add to pressure on the SNB, with the market expecting a rate cut in Frankfurt.
“We don’t expect the SNB to automatically follow the ECB if they cut their rates,” said Credit Suisse economist Claude Maurer, adding the expected ECB rate cut was already priced into the franc.
“If the franc rises quickly and to a high level, the SNB could cut rates but that’s not our main scenario,” he said.
Reporting by John Revill, John Miller and Oliver Hirt; Editing by Michael Shields