Swiss central bank tries to bring down franc again

"In the light of these developments, the Swiss National Bank is taking additional measures against the strength of the Swiss franc. It will again significantly increase the supply of liquidity to the Swiss franc money market," the central bank said.

The franc came close to parity with the euro and strengthened to 0.7085 against the dollar on Tuesday night, after the US Federal Reserve indicated that it would keep interest rates on hold at near zero for two years.

On the Swiss central bank's announcement Wednesday morning, the franc eased slightly, although it remained in afternoon trade at the high rates of 1.0279 against the euro and 0.725 against the dollar.

The central bank said the franc has risen sharply as investors have put their money into the currency, a traditional safe haven, to escape the turmoil on world markets.

The "substantial rise in risk aversion on the international financial markets has further intensified the overvaluation of the Swiss franc in the last few days," it said.

It noted that the strong franc was a threat to the economy, by crimping exports, and pledged to take further measures if it continued to strengthen.

For now, the central bank was expanding the amount of banks' sight deposits, or cash that can be withdrawn without notice, from 80 billion francs to 120 billion francs.

In addition, it will conduct foreign exchange swap transactions to increase liquidity swiftly.

Last week, the central bank also increased liquidity and cut the already low benchmark lending rate in a bid to make the franc a less attractive investment.

Analysts appeared sceptical that the measures would significantly help to halt the franc's upward trend.

Citibank analysts said that despite the action, the euro and dollar are expected to "stay close to historic lows for now, absent decisive resolution of the fiscal crises on both sides of the Atlantic."

The SNB has a "very difficult task" as the franc is strengthening because investors were looking for alternatives to the dollar and euro, they added.

DailyFX analysts meanwhile noted that "each time the SNB has announced measures to curb franc appreciation, any sell-off in the franc is immediately met with even stronger bids."

"It might be the case that the SNB would need to be all the more aggressive in their approach should they want to have a more significant impact on the markets," they said.

Several Swiss firms reporting their results in recent weeks have blamed the strong currency for reducing earnings they were repatriating to the country.

Earlier Wednesday, Nestle said its first half sales fell nearly 13 percent to 41 billion francs as the foreign exchange rate had a negative impact of 13.8 percent.

Credit Suisse said in July that the strong Swiss currency took 348 million francs off its second quarter pre-tax income.

Copyright AFP (Agence France-Presse), 2011