On Monday, January 9, the Swiss central bank announced losses of $143 billion for fiscal 2022. This is the largest loss reported by the central bank in its 116-year history.
Losses of the Swiss central bank
This total loss of 132 billion Swiss francs is also equivalent to 18% of Switzerland’s projected GDP of 744.5 billion Swiss francs. The second largest loss recorded by the Swiss central bank was 23 billion Swiss francs in 2015. The’gap shows that the recent loss is quite alarming for the Swiss central bank.
Given the current situation and the huge losses, the Swiss central bank has declared that it will not pay the usual amounts to governments and member states. Of the total losses, a staggering 131 billion Swiss francs came from foreign currency positions alone. Another billion came from Swiss franc positions. The local currency helped mitigate the losses amid a sharp rise in the value of the franc, as investors flocked to the safe haven amid volatility in Europe.
Over the past six months, since June 2022, the Swiss franc has traded above one euro. Previously, the Swiss currency had only managed to achieve this feat for a very brief period in 2015. Due to its strong export-oriented economy, Switzerland has benefited greatly from the strength of the franc. In addition, analysts have argued that Swiss companies have managed to remain competitive despite the rising franc due to inflation in the eurozone.
Swiss economy and the eurozone
The Swiss economy has done relatively well in managing inflation compared to the eurozone as a whole. Last year, in 2022, inflation in Switzerland reached 3%, compared to 10% for the eurozone. In December 2022, the Swiss National Bank also raised interest rates for the third time in 2022 to 1%.
In the context of the general market correction, the Swiss National Bank also faced losses in its equity and bond portfolio. But thanks to its gold holdings, the bank managed to earn CHF 400 million.
S’speaking to CNBC, Karsten Junius, chief economist at Swiss bank J.Safra Sarasin, said the central bank’s current losses would not change its monetary policy. The bank is ready for another 100 basis point increase to 2% this year. Noting that inflation in Switzerland is closer to its 2% target, Sarasin added:
“While the SNB will also need some time to rebuild its reserves of value, it will take less time to post profits than the European Central Bank. While both central banks are structurally profitable because they can renumerate their liabilities at below market rates, the SNB will earn higher market interest already this year while the ECB is stuck with its low-yielding bonds in its portfolio and will not be profitable for many years.”