It’s official. Quantitative easing has begun, just not where you might have expected. QE is underway in Switzerland, by the Swiss National Bank, not the US by the Fed.

Swiss National Bank Targets LIBOR “Close to Zero as Possible”

The Swiss National Bank Press release says Swiss National Bank takes measures against strong Swiss franc

The Swiss National Bank (SNB) considers the Swiss franc to be massively overvalued at present. This current strength of the Swiss franc is threatening the development of the economy and increasing the downside risks to price stability in Switzerland. The SNB will not tolerate a continual tightening of monetary conditions and is therefore taking measures against the strong Swiss franc.

Effective immediately, the SNB is aiming for a three-month Libor as close to zero as possible, narrowing the target range for the three-month Libor from 0.00-0.75% to 0.00- 0.25%. At the same time, it will very significantly increase the supply of liquidity to the Swiss franc money market over the next few days. It intends to expand banks’ sight deposits at the SNB from currently around CHF 30 billion to CHF 80 billion. Consequently, with immediate effect, the SNB will no longer renew repos and SNB Bills that fall due and will repurchase outstanding SNB Bills, until the desired level of sight deposits has been reached.

Since the SNB’s last quarterly monetary policy assessment, the global economic outlook has worsened. At the same time the appreciation of the Swiss franc has accelerated sharply during the last few weeks. Consequently, the outlook for the Swiss economy has deteriorated substantially.

The SNB is keeping a close watch on developments on the foreign exchange market and will take further measures against the strength of the Swiss franc if necessary.

Emergency Central Bank Cut Outside Scheduled Quarterly Meetings

Via email (no direct link) Barclay’s Capital reports “SNB moves to QE to counteract appreciating CHF, and cuts official rates

This morning the Swiss National Bank (SNB) announced that it will, over the coming days, increase the Swiss monetary base (that is, banks’ sight deposits held with the SNB) from currently around CHF30bn to CHF80bn – a measure that we argue can rightly be described as “quantitative easing” (QE). In effect, the bank will repurchase outstanding SNB Bills. The measure aims to bring the 3-mth Swiss Libor target rate to “as close to zero as possible”, and the bank will also narrow the target range for the 3-mth Libor from 0.00-0.75% to 0.00-0.25% – so the bank has therefore also cut official rates today (thus outside of a regular quarterly meeting). The increase in the monetary base is not necessarily going to increase the SNB’s balance sheet; rather, we believe it is more likely to result in a restructuring of its liabilities: banks’ sight deposits held with the SNB increase, while liabilities in the form of, say, SNB Bills decline.

We believe the action taken by the SNB is clearly driven by the negative consequences for the Swiss economy and the financial sector of an environment of sagging worldwide growth, accompanied by the CHF exchange rate having climbed to record highs (in nominal and real terms) vis-à-vis major currencies: “Since the SNB’s last quarterly monetary policy assessment, the global economic outlook has worsened. At the same time the appreciation of the Swiss franc has accelerated sharply during the last few weeks. Consequently, the outlook for the Swiss economy has deteriorated substantially.”

Is it any wonder gold is soaring?

Mike “Mish” Shedlock
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