Switzerland steps up FX intervention vs flying franc

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ZURICH, Dec 13 (Reuters) - The Swiss National Bank's sight deposits rose by their highest amount in seven months last week, indicating policymakers are taking the first decisive steps to battle a rise in the value of the franc against its major rivals, particularly the euro.

Total sight deposits, which include other deposits on sight in Swiss francs, rose to 722.718 billion francs from 720.336 billion francs in the previous week, according to data from the SNB.

The 2.4 billion franc increase last week was the largest rise since May 20, indicating a change of tactics by the SNB which had appeared to be sidelined even as the franc hit its highest value versus the euro since July 2015 on Dec. 3.

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A rise can indicate central bank intervention in foreign exchange markets to weaken the franc, a key plank of the SNB's strategy over the past six years.

The SNB buys foreign currencies from commercial banks in exchange for newly-created francs which are then credited to their sight deposit accounts held by the SNB.

Previous weeks have seen only small increases in sight deposits as the franc broke through the 1.05 barrier versus the single currency and continued to strengthen. It has gained more than 5% since mid-September versus the euro currency .

The SNB, which is due to announce its latest monetary policy decision on Thursday, declined to comment.

"The SNB appears to have stepped up its fight against CHF strength", said HSBC in a note, adding Chairman Thomas Jordan was probably concerned more about the speed of the currency's appreciation rather than the level it has reached.

"The fall in EUR-CHF over the last 12 weeks has been the fastest since the de-peg," the bank added referring to the euro/swiss franc exchange rate by its popular moniker.

UBS economist Alessandro Bee said the increase in sight deposits could mean the SNB was not willing to let the EUR-CHF exchange rate slip below 1.04 in the short term.

Karsten Junius, an economist at J.Safra Sarasin, said the SNB's forex purchases were likely to have been higher than the 2.4 billion franc rise in sight deposits because the seasonal cash withdrawal during the run-up to Christmas means sight deposits usually fall at this time of year.

"The SNB did not feel comfortable with the speed of the exchange rate appreciation that we have seen lately. Especially, the move below 1,04 EUR-CHF and the closer vicinity of the 1,03 level that we consider to be crucial might have triggered stronger interventions," Junius said.

He said he expected even stronger interventions from the SNB in the coming weeks in case the franc moved towards 1.03 versus the euro.

CHF intervention
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Reporting by John Revill; Editing by Saikat Chatterjee and Ed Osmond

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