March 10, 2010 / 12:00 PM / in 9 years

FACTBOX-SNB seen sticking to FX intervention threat

March 10 (Reuters) - The Swiss National Bank is expected to stick to its threat of intervention to fight an excessive rise in the Swiss franc versus the euro when it holds its regular policy meeting on Thursday.

Markets are keen to see if the central bank softens its tone after solid economic growth reduced the need for drastic measures adopted a year ago to fend off deflation.

The following are some key facts about the SNB’s current approach and past interventions:

CURRENT STRATEGY

* The central bank said at its December policy review it was committed to countering any excessive appreciation of the franc. Previously, it had said it would oppose any appreciation.

* Since Dec. 10, when the SNB relaxed its intervention stance, the franc has gained over 3 percent against the euro and breached the 1.50 mark many in the market had thought was the farthest it would allow the currency to rise.

* SNB Vice-Chairman Thomas Jordan said on Feb. 21 that the franc’s appreciation was not a barrier to economic recovery.

INTERVENTIONS SINCE DEC 10:

* Market participants assume the SNB has stepped in and sold francs several times since its last policy review in December.

* On Jan. 11 the franc fell from a 10-month peak against the euro after SNB head Philipp Hildebrand intervened verbally, repeating the SNB’s threat of intervention in an unusual unscheduled statement. [ID:nLDE6090KX]

* The biggest move came on Feb. 5, when the franc dropped 2 percent against the euro and traders in Asia said the SNB had stepped in. Traders have also cited SNB activity on Dec. 21, Jan. 29, Feb. 12, Feb. 23 and March 2 to defend a level of 1.46 per euro, currently seen as the central bank’s threshold.

* The SNB always declines to comment on intervention talk.

EARLIER INTERVENTIONS/VOLUMES:

The SNB only confirmed the very first intervention on March 12 last year, which sent the franc down by about 4 percent.

Quarterly figures indicate the central bank spent some 4 billion euros worth of francs in March, 12 billion in the second quarter, some 700 million euros in the third quarter, and some 4 billion in the fourth. [ID:nWEB6016]

Traders reported intervention episodes in May, June, September and November last year, in some cases seeing the Bank for International Settlements (BIS) acting on behalf of the SNB.

INTERVENTION HISTORY

Before becoming active on the FX market again, the SNB last physically intervened in the foreign exchange market in August 1995. Its last “solo-intervention” — independently of other central banks — was in 1992.

A working paper published by the SNB shows 69 intervention episodes between 1989 and 1995. Only three were unilateral SNB interventions, the other 66 being joint interventions, mostly with the U.S. Federal Reserve and the German Bundesbank.

SNB interventions have been conducted in the dealer market directly with foreign and domestic commercial banks. They were based on market exchange rates. The SNB communicated directly with the counterparty.

VERBAL INTERVENTIONS

The SNB has used verbal interventions at various times in the past, usually by stepping up the degree of warnings, from voicing concern about the exchange rate level to talking about the potential need to react to the currency’s development.

The SNB used strong warnings against the dangers of deflation in 2003, when interest rates were also close to zero.

The SNB also used verbal interventions to slow the franc’s decline in 2007 after carry trades had driven the currency to an all-time low against the euro at 1.6828 per euro in October. (Reporting by Sven Egenter and Catherine Bosley; editing by Patrick Graham)

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