UPDATE 1-Swiss FX reserves post sharpest rise on record in May

* FX reserves up 78.8 bln Sfr, steepest rise on SNB records

* Rise due to SNB FX interventions

* Extra liquidity poses potential inflation risk

(adds details, analyst comment, background)

ZURICH, June 8 (BestGrowthStock) – Switzerland’s currency reserves
posted their sharpest rise on record in May, highlighting the
deepening dilemma for the Swiss National Bank, whose massive
currency interventions add liquidity despite the economic
recovery.

The overall currency reserves rose by 78.8 billion Swiss
francs to 232.4 billion francs ($200.7 billion) in May,
surpassing by far the 28.7 billion rise in April, the website of
the Federal Statistics Office showed on Tuesday.

“These are official figures,” SNB spokesman Nicholas Haymoz
said, declining to comment further on the data.

The increase was the highest on records available on the
SNB’s website, which start in mid-1999.(www.snb.ch)

The Swiss franc soared to a new all-time high at 1.3784
against the euro(EURCHF=: ) on Tuesday as the market tested the
SNB’s resolve to prevent excessive gains in the currency. By
1054 GMT, the euro-franc was trading at 1.3819.

The SNB started buying euros against francs in March 2009 as
part of its fight against deflation and the central bank’s
currency reserves have increased nearly five-fold since then.

SNB officials have so far stuck to the central bank’s
stance, saying the SNB was still committed to preventing too
sharp a rise in the franc.

The central bank will give an update on its currency
strategy in its quarterly monetary policy assessment on June 17.
Analysts also expect details on the SNB’s plan to deal with the
huge amount of liquidity added through the interventions.

“There are rumours that the SNB could allow for more
appreciation (of the Swiss franc vs the euro) and that is what
we have seen in the exchange rate,” Fabian Heller, an analyst at
Credit Suisse, said.

“Just from the exchange rate, it seems that the SNB has
changed its forex strategy. In June, they probably won’t spend
as much on euros as they have in May,” he added.

“At the moment, liquidity is very high. This is reflected
strongly in the 3-months Swiss franc Libor(CHF3MFSR=: ), which has
dropped to a record low,” Heller said.

The 3-month LIBOR was fixed at 0.08 percent on Tuesday,
slightly above its all-time low of 0.07667 hit on Monday but
well below the SNB’s official target of 0.25 percent.

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(Reporting by Silke Koltrowitz; Editing by Ruth Pitchford)

UPDATE 1-Swiss FX reserves post sharpest rise on record in May