ZURICH (Reuters) - The Swiss National Bank’s foreign exchange reserves hit 71 percent of annual output in August, with the pace of the rise slowing in a sign that less central bank intervention was needed to enforce its cap of 1.20 per euro on the safe-haven franc.
The SNB had 418.430 billion Swiss francs in reserves as of the end of August, compared with a revised 408.605 billion in July, according to preliminary data provided to the International Monetary Fund on Friday.
The markets have grown less worried in recent weeks about the threat of the euro zone breaking up, on hopes the European Central Bank will take steps to lower borrowing costs in some highly indebted countries and ease the crisis.
“Bank sight deposits suggested the increase would be much smaller in August. The rise is the smallest in recent months, and shows the SNB had to intervene much less in the period,” said Credit Suisse analyst Maxime Botteron.
“It is also probably due to relief triggered by the comments of Draghi at the beginning of August, when he opened the door to bond buying of peripheral country bonds.”
The SNB’s foreign currency reserves rose by a total of 170 billion Swiss francs ($178.1 billion) between April and July.
In 2010 the SNB posted a record 27 billion franc loss on its holdings as it loaded up on weakening euros in its efforts to tame the franc, which resulted in calls for the central bank chief to resign.
The SNB set its cap on the franc a year ago to prevent deflation and a recession. For much of that time the economy proved surprisingly strong, and as the SNB’s currency holdings spiraled, questions emerged as to how long it would be able to sustain the cap.
Yet that picture reversed earlier this week after data showed a contraction for the second quarter.
The SNB holds its next policy review on September 13, when it is likely to reaffirm its pledge to cap the franc at 1.20 and perhaps threaten more measures, given the recent loss of economic momentum.
It will also issue a new growth forecast.
The publicly owned SNB (SNBN.S) also posted a hefty profit, including more than 5 billion in gains on its forex position, for the first half of the year, helping to quiet its critics.
According to the most recent quarterly data as of the end of June, the SNB held 60 percent of its reserves in euros and 22 percent in dollars. The bulk is invested in highly rated government bonds. ($1 = 0.9547 Swiss francs)
Reporting by Martin de Sa'Pinto and Caroline Copley; Editing by Hugh Lawson