19 Jan 2015
The Swiss move may be relevant to Asia – Nomura
FXStreet (Barcelona) - The Research Team at Nomura explains that the Swiss move may be relevant to Asia, with many Asian countries sharing the same predicament of large FX reserves.
Key Quotes
“…the SNB may believe that the sheer size of its foreign reserves – USD550bn or 82% of GDP – has reached the point where the costs and risks associated with a further build up exceed the benefits.”
“The obvious cost is SNB’s exposure to sizable losses on its assets, and there is the risk of rising financial stability concerns. If the FX intervention is not fully sterilised, it could cause a monetary boom, and even if it is sterilised, Swiss banks are being forced to hold very low-yielding sterilisation bonds, which encourage them to take on greater risk to increase their return on assets.”
“It is no surprise that the Swiss property market is booming and bank lending has surged to 170% of GDP.”
“Many countries in Asia share Switzerland’s predicament of large foreign reserves, appreciating effective exchange rates and booming credit markets.”
Key Quotes
“…the SNB may believe that the sheer size of its foreign reserves – USD550bn or 82% of GDP – has reached the point where the costs and risks associated with a further build up exceed the benefits.”
“The obvious cost is SNB’s exposure to sizable losses on its assets, and there is the risk of rising financial stability concerns. If the FX intervention is not fully sterilised, it could cause a monetary boom, and even if it is sterilised, Swiss banks are being forced to hold very low-yielding sterilisation bonds, which encourage them to take on greater risk to increase their return on assets.”
“It is no surprise that the Swiss property market is booming and bank lending has surged to 170% of GDP.”
“Many countries in Asia share Switzerland’s predicament of large foreign reserves, appreciating effective exchange rates and booming credit markets.”