SNB interventions boost currency reserves to record high

The Swiss National Bank's foreign exchange reserves rose sharply last month, data showed on Wednesday, after the central bank intervened to keep a lid on the red-hot franc.

The figures come as the Eurozone grapples with talk of a possible exit by Greece and the euro currency slid to a nine-year low against the dollar, factors which are likely to test the Swiss central bank's resolve to defend a three-year old cap on the franc against the euro by intervening in currency markets.

The SNB held 495.104 billion Swiss francs ($490 billion) in foreign currency at the end of December, compared with 462.669 billion francs in November, revised from an originally reported 462.395 billion, preliminary data calculated according to the standards of the International Monetary Fund showed.

The reserves - which have reached a size equivalent to around three-quarters of the entire Swiss economy - are the first indication of the depth of the central bank's intervention last month, when a rapidly weakening Russian rouble pushed the franc up further and prompted the SNB to act. The SNB is in focus after European Central Bank President Mario Draghi said last week the central bank stood ready to respond to the risk of deflation, many expect an announcement to come as soon as this month.

"Foreign exchange markets are still challenging the floor," said Ipek Ozkardeskaya, an analyst at Swissquote. At 0905 GMT, the franc was trading at 1.2010. Eurozone inflation data due later today might prompt the SNB to "pull the trigger again today" on interventions, she said, as deflation in the Eurozone is expected to revive speculation that the ECB could launch a full-blown quantitative easing as soon as the January 22 meeting.

The SNB said last month it would start charging banks for deposits in francs for the first time since the 1970s, hoping to stem a flight to the safe-haven currency driven by concern over the Eurozone and Russia's deepening crisis.

The SNB disclosed the reserves two days before it reports preliminary earnings for 2014, which Swiss bank UBS has estimated at between 36 billion and 38 billion Swiss francs, following a loss in the previous year on a drop in the price of its gold holdings.

The SNB's profits, which the central bank traditionally pays out in part to federal and cantonal governments, have been a delicate subject politically since last year's absence of payouts. On Sunday, the head of Switzerland's cantonal finance directors called for the SNB to top up payouts from 2014 profits to make up for the nilpayout from the 2013 results.

Other commentators have argued that the SNB, which is already carrying a bloated balance sheet due to previous interventions after it capped the soaring franc in September 2011 to help stave off recession and the threat of deflation, should stow profits against future losses.