Most anally SST expect the CB to launch such a policy, known as quantitative easing at its Jan. 22 meeting. The prospect of hundreds of billions in freshly created euros flooding the mar sets had led to a significant weakening of the euros exchange rate, particularly against the U S. Dollar, ma king the Snob’s currency cap an increasingly risky and costly endeavor. Beat Singletree, a strategist at UBS, estimated the central bank faces an IM plied paper loss of about $40 billion on its foreign currency holdings because of the day’s move.
The Snob’s decision, and the frantic reaction in financial markets, highlights the challenge facing central banks that have kept supposedly temporary measures in place for many years, and the sensitivity of markets to changes in those policies. In the U. S. Nearly two years ago, uncertainty over the e unwinding of the Federal Reserves quintessentially program ignited volatile swings across financial markets, particularly in emerging markets.
The Swiss case also shows the limitations of central banks in pushing against f ores in the financial markets for an extended period, particularly when policy makers focus on currencies a s a policy tool as Switzerland has. Central banks have been the heroes [of the global economy] the last few yea RSI, but there are costs to being heroes,” said Charles Hypos, professor at the Graduate Institute in Geneva. “They’re all in a bind’ with interest rates stuck near zero in many developed economies.
The Snob’s decision to scrap the currency cap was accompanied by the mimed Tate introduction of negative interest rates on overnight bank deposits, designed to lessen the attractive as of the franc. Abandoning the cap marks an abrupt bootlace for the SNOB, which has consists tenthly defended the cap on the ran since it was introduced in September 2011. SNOB President Thomas Cord an and some of the bank’s other top officials had reiterated that the cap was a cornerstone of its policy. HTTPS://glorification. Lollipop. Sum. Due. So/AAA/ sable googol f 1/2 1/18/2015 In a news conference, Mr.. Jordan said the cap had served its purpose, helping stabilize the Swiss economy and give exporters adequate time to adjust their businesses to the strong far NC. But he said maintaining the policy was ‘t an option. “We decided that due to international developments the time was right to disk continue the minimum exchange