Central Bank

The Swiss National Bank is ready to intervene in the currency markets again as it continues to battle the "significantly overvalued" Swiss franc, the central bank said Thursday after it kept its key policy rate unchanged in deeply negative territory.
The SNB’s maintained its deposit rate at -0.75%, as expected by economists. It also maintained its three-month Libor target at -1.25% to -0.25%.

"The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency," the SNB said in a statement.

The U.S. Federal Reserve decided to raise interest rates for the first time in 2016 and the second time in a decade. At the conclusion of its two-day Federal Open Market Committee (FOMC) December meeting, committee members voted unanimously to raise the U.S. central bank’s target range for the federal funds rate to 0.50 to 0.75 percent. The FOMC raised interest rates for the first time in nearly a decade last December.

Janet Yellen, the Fed chairwoman, said “growth is a touch stronger, unemployment is a shade lower” as she announced a 0.25% increase in the benchmark rate to 0.50-0.75%.

The Fed has finally delivered a second rate hike a year after the last one in this cycle.

“What’s more interesting is their guidance on where interest rates might go from here. This time last year the Fed turned out to be wildly off mark in what they were predicting. But this year there are reasons for thinking the Fed’s guidance is more realistic. The economy is in a more advanced stage of recovery and market pricing reflects this. We can expect rates to slowly climb through next year and beyond.”

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The Fed is almost certainly going to hike, so this meeting is more about the guidance on interest rates next year.

This is less than what was expected and will catch markets off guard. They’ve bought some flexibility should the outlook become less favourable, which might give some comfort.

The European Central Bank will extend its asset purchase program to the end of December 2017, but at a reduced monthly pace.

The ECB said on Thursday it would extend its so-called quantitative easing program by nine months, until at least the end of next year, taking its total size above €2.2 trillion ($2.36 trillion). But starting in April, the bank will reduce the value of securities it buys per month to €60 billion from €80 billion.

The foreign exchange reserves of the Swiss national Bank rose by CHF 17.6 billion in November to CHF 648 billion, setting a new record. During the month of October, the variation was more subdued as it increased by CHF 2.4 billion to CHF 630.4 billion. The SNB’s reserves are roughly equal to Switzerland’s entire gross domestic product.

It was the biggest increase since December 2014, the month before the SNB abandoned a ceiling it had maintained for over three years on the franc’s value against the euro.