SNB’s Jordan Sees No Reason to Remove Swiss Franc Cap

The Swiss National Bank (SNBN)’s cap on the franc remains appropriate given the currency’s strength and economic risks in the euro area, President Thomas Jordan said.

“We believe the franc is still highly valued and there is no risk of inflation,” said Jordan, speaking at a business reception in his home town of Biel, Switzerland. “The minimum exchange rate remains indispensable to ensure price stability in Switzerland.”

The Zurich-based central bank set a cap of 1.20 per euro on the franc in September 2011, citing the risk of deflation and a recession. It has promised unlimited currency interventions to defend the cap and Jordan repeated that commitment today.

While consumer prices are falling, the Swiss economy has escaped an economic slump and managed to stay unscathed from the debt crisis that has afflicted the neighboring euro area, its biggest trading partner.

“The crisis hasn’t yet been fully overcome” in the 17-nation currency bloc, Jordan said.

The SNB has accumulated 434.7 billion Swiss francs ($475 billion) in foreign-currency reserves in its campaign to defend the ceiling on the franc. The central bank hasn’t had to intervene in currency markets for more than a year, policy makers have said.

Because of the central bank’s loose policy, the Swiss real-estate market is in the midst of its strongest accent in two decades. The SNB has repeatedly warned of overheating, and was behind the government’s implementation of a capital buffer for banks to guard against mortgage writedowns that came into effect in September.

Jordan said today that it is still too early to say whether the capital buffer is proving effective.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

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

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