ZURICH The Swiss National Bank appears to have dialled back its currency market interventions, the scale of which in recent weeks has been hidden by seasonal effects such as early tax payments.
The SNB on Wednesday reported the first decline in its foreign exchange holdings since January and this week posted a drop in domestic sight deposits, a proxy for its foreign currency purchases, which are aimed at softening the strong Swiss franc.
For a graphic see tinyurl.com/lk9ejws
An analysis of sight deposit data shows an increase of just 89 million Swiss francs (£71.3 million) last week, down from an average of nearly 2.1 billion francs per week so far in 2017.
But the reduction has been masked in recent weeks as Swiss individuals paid their taxes in April and May, inflating the level of total sight deposits, a keenly watched figure seen as a signal of the SNB's strategy.
"The increase in sight deposits in recent weeks was likely not down to currency interventions, but more seasonal effects like tax revenues being paid to the central government," said Alexander Koch, an economist at Bank Raiffeisen.
"That will have increased sight deposits by around 10 billion francs," he said. "This has probably had an important psychological effect on the market, and helped the SNB by giving the impression it is being more active in the market."
The SNB has been using a combination of foreign currency purchases and negative interest rates to ward off interest in the Swiss franc since it scrapped its limit on the currency versus the euro two-and-a-half years ago.
The bank, which gives its latest monetary policy update next week, declined to comment on its interventions.
Chairman Thomas Jordan said last week he remained committed to its twin-track strategy and has room to expand its balance sheet. Its balance sheet has now expanded to nearly 783 billion francs, 18 percent larger than Swiss GDP in 2016.
Other economists said the SNB was intervening less than in recent weeks, with its actions following a pattern of responding to political uncertainty which usually drives demand for the franc.
"The SNB is certainly hoping it won't have to intervene as much as it has in the past," said Alessandro Bee, an economist at UBS. "Risk aversion which was in the market before has now been reduced."
(Reporting by John Revill; Editing by Hugh Lawson)