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While the bank’s stock and bond folios took a major hit, the gains with the gold holdings have managed to subside the losses.
On Monday, January 9, the Swiss central bank reported losses of $143 billion for the financial year 2022. This is the biggest loss reported by the central bank in its 116 years of history.
Losses of the Swiss Central Bank
This total loss of 132 billion Swiss francs also equates to 18% of Switzerland’s projected GDP of 744.5 billion Swiss francs. The second-highest recorded loss for the Swiss central bank is 23 billion francs back in 2015. The gap shows that the recent loss is quite alarming for the Swiss central bank.
Amid the current situation and huge losses, the Swiss central bank said that it won’t make usual payouts to governments and state members. Of the total losses, a staggering 131 billion Swiss francs came alone from foreign currency positions. Another 1 billion came from Swiss franc positions. The local currency helped to subside losses amid strong gains made by the franc since investors flocked to the safe haven amid the European volatility.
Over the last six months since June 2022, the price of the Swiss franc has been trading above one euro. Before this, the native Swiss currency managed to achieve this feat only for a very brief period in 2015. Due to its export-heavy economy, Switzerland has been largely capitalizing on the strength of the franc. Furthermore, analysts have argued that Swiss businesses have managed to stay competitive despite the rising franc due to the Eurozone inflation.
Swiss Economy vs Eurozone
Switzerland’s economy has performed relatively well when it comes to managing inflation when compared to the entire Eurozone. Last year in 2022, the inflation in Switzerland surged to 3% against the Eurozone inflation of 10%. In December 2022, the Swiss National Bank also raised interest rates for the third time 2022 to 1%.
Amid the broader market correction, the Swiss National Bank also faced headwinds with the losses in its stock and bond portfolio. But through its gold holdings, the bank managed to gain 400 million francs.
Speaking to CNBC, Karsten Junius, chief economist at Swiss bank J.Safra Sarasin, said that the current losses faced by the central bank wouldn’t alter its monetary policy. The bank is prepared for another 100 basis points hike to 2% this year. Noting that the inflation in Switzerland is closer to its 2% target, Sarasin added:
“While the SNB will also need some time to rebuild its valuation reserves it will take less time to show profits than in the case of the European Central Bank. While both central banks are structurally profitable as they can renumerate their liabilities at a lower rate than the market, the SNB will earn higher market interest this year already while the ECB is stuck with its low yielding bonds in its book and will be unprofitable for many years.”
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