The Swiss National Bank chose not to intervene in currency markets during May, leaving its foreign exchange reserves largely unchanged amid a resurgence of Swiss franc strength. Data released this month showed minimal fluctuations in the central bank’s holdings, reinforcing observations from financial analysts that no significant actions were taken despite heightened franc valuations.
Bank of America FX strategists say this pause is likely a deliberate response to Switzerland’s recent addition to a US Treasury watchlist of countries monitored for potential currency manipulation. The inclusion appears to have impacted the SNB’s public posture, prompting a cautious approach to avoid triggering further scrutiny. Despite persistent appreciation pressure on the franc, policy remains steady.
The strength of the franc and its deflationary impact domestically have fueled speculation about a return to negative interest rates. May’s consumer price index declined, marking a four‑year low in inflation and signalling that monetary policy could shift to counter deflationary trends. In response, markets are considering whether negative rates could come back into play in Switzerland’s next monetary policy cycle.
That possibility was echoed by analysts from investment firms who emphasize that aggressive central bank intervention could reignite US accusations of currency manipulation. The SNB's preferred strategy has been interest rate adjustments rather than direct forex market operations—a stance that may reassess amid mounting franc appreciation and weakening price levels.
Despite its inclusion on the US watchlist, the SNB vehemently defended its actions as aligned with its mandate. Officials stated the bank does not seek to manipulate exchange rates to create trade gains and pledged continued dialogue with US authorities to explain Swiss economic policy. The institution emphasized its primary objectives remain inflation control and economic stability.
In 2024, disclosed FX data showed the SNB acquired roughly $1 billion in foreign currencies—about 0.1% of GDP—well under the 2% threshold used by US authorities to flag manipulation. This historical restraint, combined with recent steady reserves, supports the SNB’s claim that its activities adhere to international norms and avoid artificial currency suppression.
Still, analysts caution that Switzerland’s rapidly rising currency might reinvigorate pressure on the central bank to adjust policy, either by cutting rates further or resuming forex interventions. The franc has surged more than 10% year‑to‑date, raising concerns over export competitiveness and inflation targets.
The US Treasury report outlines key criteria triggering watchlist inclusion: strong bilateral trade surpluses, consistent current account outperformance, and net positive FX interventions over time. While Switzerland met the first two benchmarks, its intervention was deemed non‑systematic. However, being watched may constrain the SNB’s ability to act sharply in FX markets without diplomatic consequences.
Macroeconomic observers increasingly expect policy updates at the SNB’s next meeting in mid‑June. The options include cutting rates further from the current 0.25%, scaling up liquidity measures, or resuming currency purchases if deflation deepens. With inflation hovering near zero and economic growth modest, these policy options are being weighed carefully.
The SNB's deliberate pause on forex intervention reflects a balancing act: addressing domestic deflation risks while avoiding further international friction. The current stance supports the institution’s credibility and preserves flexibility. However, if franc appreciation continues to impede economic objectives, decisive action may become unavoidable. Policymakers must weigh the costs and benefits of market intervention against their institutional reputation—a choice that will shape Switzerland’s monetary direction in the months ahead.