Switzerland's central bank posted a profit of 7.9 billion Swiss francs ($7.95 billion) in the first quarter, it said Thursday, boosted by gains from the huge foreign currency reserves built up during its long campaign to weaken the Swiss franc.
The Swiss National Bank made a profit of 5.3 billion francs on its foreign currency holdings that rose to 683.18 billion francs at the end of March, a figure larger than Swiss GDP. The bank also made a profit of 2.2 billion francs from a valuation gain on the gold it holds, and 466.4 million francs from negative interest rates it has charged on the sight deposit accounts it holds for commercial banks. The SNB is not required to make a profit, with its main mandate to ensure price stability in Switzerland defined as annual inflation of under 2 percent. But a portion of any profit it does make is distributed to the Swiss government and the country's 26 cantons.
A strong franc makes life tough for Switzerland's exporters by making their products more expensive outside the country. The SNB's currency interventions have led it to being named on the U.S. Treasury's watch list of potential currency manipulators. But the SNB has also continued to intervene in the currency markets by spending an average of 2.5 billion francs per week this year, according to an analysis of sight deposit account data which serve as a proxy for the SNB's market moves. The figure is almost twice as high as for the same period in 2016, with the increased activity driven by safe-haven flows into the franc linked to investor uncertainty around the French presidential elections.
On Friday Chairman Thomas Jordan said the Swiss National Bank could cut rates deeper into negative territory and step up currency market interventions if necessary to pursue its ultra-loose policy and rein in the strong Swiss franc.
"Given low inflation and underutilisation of production capacity, maintaining an expansionary monetary policy in Switzerland is the right course of action to take. The Swiss franc is still significantly overvalued," he said in remarks prepared for the central bank's annual general meeting.
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