Switzerland’s central bank will maintain its cap on the franc for at least another year as a weak euro-region economy keeps policy makers on alert, according to a Bloomberg News survey.
The ceiling of 1.20 francs per euro, which the Swiss National Bank (SNBN) set in September 2011 to stave off haven flows from the euro area, will stay in place until 2015, according to 41 percent of economists in the Bloomberg News survey. Another 35 percent predict the SNB will wait until 2016 to abandon the cap, while 18 percent forecast it will happen next year.
“I wouldn’t expect them to lift the cap before the end of 2014,” said Martin Gueth, an economist at LBBW in Stuttgart. “At the moment, it’s a safety net for the central bank and the economy to guard against damage brought on by a sudden appreciation.”
The Zurich-based central bank affirmed its currency policy last week, when it published new economic forecasts. Swiss inflation will average just 0.2 percent next year as the economy suffers from the “vulnerable” state of the euro area, its largest export market, officials said.
The Swiss economy is in a more robust state than the euro area’s. The country’s jobless rate as defined by the International Labour Organisation stood at 4.2 percent at the end of the second quarter, compared with 12.1 percent in the single-currency region, and exports -- which suffered as the franc strengthened -- helped drive growth in the third quarter. Exports rose 4.2 percent in November from a month earlier, data published by the customs office today showed.
The franc has depreciated 0.1 percent against the euro today to 1.2242 at 11:55 a.m. Zurich time. Against the dollar, the franc was down 0.1 percent at 89.49 centimes.
Swiss gross domestic product is expected to rise 2.3 percent in 2014, accelerating to 2.7 percent, the State Secretariat for Economic Affairs in Bern said today. It cut its inflation forecast for next year to 0.2 percent from 0.3 percent, and sees prices rising 0.4 percent in 2015.
Economists raised their outlook in the Bloomberg survey, predicting expansions of 2.1 percent in both 2014 and 2015. Last month, they forecast growth of 1.9 percent and 2 percent, respectively. The International Monetary Fund expects the Swiss economy to expand 1.79 percent next year, compared with growth of 0.96 percent in the neighboring euro area.
“The Swiss economy has shown it can stomach a stronger franc, so long as the movement isn’t abrupt,” said Roland Klaeger, an economist at Raiffeisen Switzerland in Zurich, who predicts policy makers will allow the franc to float freely again in 2014. “Haven demand will diminish as the euro area improves next year and the SNB will use the opportunity to exit.”
In the U.S., the Federal Reserve is trimming its monthly bond purchases to $75 billion from $85 billion, taking the first step toward unwinding the unprecedented stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from the worst recession since the 1930s.
Swiss consumer prices will rise 0.5 percent next year and 0.9 percent in 2015, according to the Bloomberg poll. Economists predict the SNB will keep its benchmark interest rate at zero through the end of the second quarter of 2015.
The SNB’s loose monetary policy has kept mortgages cheap and spurred a real-estate boom. Apartment prices have risen 27 percent since 2008, while those of single-family homes have gained 24 percent.
With mortgage lending growing at a faster pace than the economy, the SNB has sounded the alarm. As of September, banks have been required to hold a capital buffer equivalent to 1 percent of mortgage-related assets. The measure, enacted by the government at the request of the central bank, can be raised to as much as 2.5 percent.
The SNB said last week that the danger of a further build-up of imbalances “remains considerable” and Vice President Jean-Pierre Danthine indicated that more action will be needed.
Asked about the buffer, 10 of the 14 economists in the survey said they expect it to be raised in the first quarter of next year.
“It seems like it’s looming,” said Ralf Wiedenmann, an economist at Vontobel Asset Management AG in Zurich. “Inflation is weak so they want to keep the cap, but they see an overheating in the real-estate market.”
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