March 25, 2019 / 3:55 PM / 24 days ago

UPDATE 1-Swiss National Bank's reserve assets rise as trade balance widens

(Rewrites, adding detail)

ZURICH, March 25 (Reuters) - Switzerland’s central bank continued to acquire foreign currency at the end of 2018, data showed on Monday, as the country’s quarterly trade surplus widened to 15.2 billion Swiss francs ($15.3 billion).

The current account surplus in the fourth quarter rose from a 12.9 billion franc surplus a year earlier, due to higher receipts from investment income from abroad, although there was a lower excess from the sale of goods and services.

Reserve assets recorded a net acquisition of 2.8 billion francs, a similar level to a year earlier, but down from 4.9 billion francs during the third quarter of 2018, the SNB said.

The figure showed the SNB had been buying foreign currencies to weaken the safe-haven Swiss franc, albeit on a reduced scale.

Maintaining its ultra-loose monetary stance last week, the SNB said it would “remain active in the foreign exchange market as necessary.”

The expansion of its reserve assets showed how difficult it would be for the SNB to reduce its balance sheet in future, said Alessandro Bee, an economist at UBS.

The SNB has built up a balance sheet of 773 billion francs of foreign currency holdings at the end of 2018, a figure bigger than the entire Swiss economy.

The investments, bought with newly created francs, make the SNB’s earnings volatile and have also led to Switzerland appearing on a U.S. Treasury monitoring list of currency manipulators.

“The SNB’s first priority will be to raise interest rates into positive territory and it will be five to 10 years before they can start looking at the balance sheet,” said Bee.

“The SNB has reduced its interventions, but it has repeatedly said it is prepared to act in the currency markets to weaken the franc if necessary. This shows they are doing a few things on a small scale.”

The SNB has been committed to halting the rise of the Swiss franc, which it has described as “highly-valued.” A strong franc makes life difficult for Switzerland’s export-reliant economy by making Swiss goods more expensive abroad.

Last week, the SNB revealed it had drastically cut back its foreign currency interventions to a “modest” 2.3 billion Swiss francs during 2018. ($1 = 0.9925 Swiss francs) (Reporting by John Revill; Editing by Silke Koltrowitz and Hugh Lawson)

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