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UBS: SNB May Need to Buy Euros Daily to Defend Franc Cap

The Swiss National Bank may have to purchase euros on a daily basis and introduce negative deposit rates as investors push the franc toward its 1.20-per-euro cap, according to the nation’s biggest bank, UBS AG.

Price action over the past few days indicates the central bank has been purchasing the 18-member currency to defend the cap, UBS strategists including Zurich-based Beat Siegenthaler, wrote in an e-mailed note today. Sight deposits data, set to be published on Nov. 24, will give the first indication of whether this is the case, the note said.

Traders are unwilling to buy the euro against the franc “because the tail risk of the floor breaking is looming too large,” the strategists wrote. “As a result, the cross could become trapped at current levels with the SNB prompted to be active on a daily basis. Negative deposit rates might be the only way out of the situation as they would give traders renewed incentives to sell Swiss francs.”

Bloomberg [1]

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