Intervention of central banks in exchange rate markets

The SNB left the key rate unchanged at -0.75% as widely expected, but vowed to step up FX intervention and to keep the banking sector liquid, in simple terms to keep the currency under control. The central bank acknowledged the impact of virus developments, which also put upward pressure on the CHF. The SNB said growth will be likely be negative this year and that it is considering reducing the countercyclical capital buffer, which in Germany was already cut back to zero yesterday. The exemption threshold for the negative rates will be lifted and while the SNB stressed that the banking system has sufficient liquidity for now, it also stressed that it will ensure that it stays like that.

But what is an intervention of central banks, how are interventions conducted and what effects do they have on the markets and the economy?

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Andria Pichidi

Market Analyst

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