Danthine Says Franc Limit Is ‘Front and Center’ of SNB Policy

Swiss National Bank (SNBN) board member Jean-Pierre Danthine said the franc cap remains policy makers’ main focus as risks of deflation haven’t fully disappeared.

“The minimum exchange rate of 1.20 francs per euro remains front and center of the SNB’s monetary policy,” Danthine said at an event in Zurich yesterday. SNB will enforce the limit “with the utmost determination. It is prepared to buy foreign currency in unlimited quantities for this purpose.”

The Swiss central bank imposed the franc ceiling six months ago and maintained the level at its March 15 policy meeting, when it said that it still sees a threat of a general fall in the price level, or deflation. While exports and consumer spending are showing signs of stabilization, consumer prices fell for a fifth month in February from a year earlier.

If the global economy worsens or the franc doesn’t weaken further as expected, “downside risks to price stability could re-emerge,” Danthine said. “Whatever the case may be, the SNB stands ready to take further measures at any time, if the economic outlook and the risk of deflation so require.”

The franc gained as much as 37 percent against the euro, the currency of the country’s main trading partners, before the introduction of the ceiling on Sept. 6, making exports less competitive while lowering the cost of imports. It has since remained in a range of 1.20 to 1.25 per euro.

‘Operatively Ready’

Dewet Moser, a SNB deputy board member, said the central bank is “operatively always ready” to weaken the franc.

The SNB applies a “zero-tolerance principle” on its cap, he said. It “ensures day and night that the minimum exchange rate is maintained -- from Sunday night when the markets open in Sydney until Friday night when markets close in New York.”

Danthine said the the cap has reduced exchange-rate volatility and given companies more security in planning.

“While the high value of the Swiss franc continues to present enormous challenges to the economy, the minimum-exchange rate is having an impact,” he said. “There are growing indications that the Swiss economy is stabilizing.”

To contact the reporter on this story: Klaus Wille in Zurich at kwille@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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