A central bank running suicide ? SNB prints at pace never seen since EUR/CHF parity in August 2011

The most recent money supply data from the Swiss National Bank (SNB) has shown increases of huge amounts. As compared with its loss of 19 bln. francs in 2010 (3% percent of the Swiss GDP), the central bank printed tremendous 17.3 bln. in the week ending in June 1st and 13 bln. in the one ending in May 25th.

These numbers were not seen since August 2011 when the SNB increased money supply by 50 bln and 40 bln per week buying the EUR/CHF at rates between 1.00 and 1.13. Now, however they are buying at 1.20 and are risking extreme losses, especially because many other central banks are dumping euros.

In the 6 winter months the SNB managed to reduce money supply by 34 billion CHF selling euros from its balance sheet. However, only in the last three weeks, the SNB lost all these “gains” and had to buy euros for a similar amount.

Last week rumors at CNBC about some developments at the SNB before the release of the Swiss GDP led us to the conclusion that the SNB either drops the floor or prints enormous amounts. A better than expected Swiss GDP and very bad US jobless figures were the reasons that the SNB had to print even more than in the preceding week. We calculated last week that if the speed of 13 bln. CHF per week is maintained, then currency reserves will more than double this year, a weekly increase by 17.3 bln. would mean they rise by 3 to 4 times. A member of the SNB board, Jean-Pierre Danthine said that the central bank is worried about the size of the balance sheet, but pledged that the central bank will defend the floor. No reference was made to capital controls.

Earlier in March he told that Swiss inflation will come back. In earlier posts (here, here and here) we also showed that Swiss inflation will pick up sooner or later and that at this point the SNB must adhere to its main principle of price stability, will stop printing and realize its losses like it already did in 2009 at 1.50 and 2010 at 1.40.

Some economists think that SNB can print as much as it wants. But similarly as central banks do not posses unlimited forex reserves (like the Bank of England vs. George Soros), a central bank cannot print ad infinitum without risking that inflation will strongly hit back. This inflation hit after SNB money printing has often happened to Switzerland and caused e.g. the huge Swiss real estate crisis of the 1990s.

Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and we encourage you to complete your own due diligence when making an investment decision. Even if we often write about Forex trading, our advices aren't written for day traders who follow technical channels, but rather for mid- and long-term investors. Our aim is to show discrepancies between fundamental data and current asset valuations, which can lead in mid-term to an inversion to technical channels.
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Disclosure: We are short EUR/CHF