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SNB Is Ready to Act on Franc, Hildebrand Tells NZZ am Sonntag

Swiss National Bank Chairman  Philipp Hildebrand
Philipp Hildebrand, chairman of the Swiss National Bank (SNB). Photographer: Adrian Moser/Bloomberg

Swiss central bank President Philipp Hildebrand said policy makers remain ready to act in case the franc’s strength increases the risk of deflation and threatens the country’s economy.

The Swiss National Bank expects the franc “to depreciate further,” Hildebrand told NZZ am Sonntag newspaper in an interview conducted Nov. 2 and published today. “Should that not be the case, it could lead to deflationary developments and weigh heavily on the economy. We are ready to take further measures in case economic prospects and a deflationary development should require it.”

The Swiss central bank on Sept. 6 imposed a ceiling of 1.20 francs versus the euro after the currency, sought by investors in times of financial turmoil, had appreciated more than 17 percent in the previous 12 months, threatening Swiss exports and boosting the risk of deflation. The Swiss government in September lowered its forecast for exports and Staefa, Switzerland-based hearing-aid maker Sonova Holding AG last month said the franc’s strength against the dollar and the euro cut first-half sales by 17 percent.

Asked whether the SNB would increase its cap on the franc versus the euro, the president said that the central bank “monitors the data and would take further measures if needed.” He didn’t elaborate.

The Swiss franc reached an all-time high of 1.0075 versus the euro, the currency of its main trading partners, on Aug. 9. Since the introduction of the cap, the currency has remained between 1.20 and 1.2474 versus the single-currency.

‘Crystal-Clear Policy’

The franc fell 0.5 percent to 1.2200 versus the euro on Nov. 4 in European trading.

“We are noticing that our crystal-clear policy in introducing the minimum exchange rate is very credible,” Hildebrand said according to the newspaper. “At the current exchange rate versus the euro, the franc is still highly valued.”

The Swiss Labor Union Federation, representing some 380,000 workers, said on Oct. 18 the SNB should raise the ceiling to at least 1.40 versus the euro. Swissmem, Switzerland’s largest lobby group for manufacturers, has also called for a higher cap.

The SNB’s past efforts to stem the franc’s advance, including 15 months of currency sales, contributed to the central bank’s record $21 billion loss in 2010, prompting calls by lawmakers for Hildebrand to resign. The SNB more than quadrupled its currency holdings over 15 months beginning in March 2009, before suspending interventions in June last year.

1.5% Growth

Swiss exports declined in the third quarter, partly because of the franc’s gains and Geberit AG, Europe’s largest maker of toilet flushing systems, said this month full-year earnings before interest, tax, depreciation and amortization may decline partly because of the currency’s strength.

Hildebrand said that Switzerland’s economy will grow “a solid” 1.5 percent in 2011 and that the situation has deteriorated since the middle of the year. “I expect Switzerland’s economy to stagnate in the second half at best or maybe even to contract slightly,” the central bank governor told NZZ am Sonntag.

At its last monetary policy assessment in September, the SNB said it expected the Swiss economy to expand between 1.5 percent and 2 percent this year.

“In 2012, growth rates may be very slim at best,” Hildebrand said, according to the newspaper.

The central bank is monitoring developments in the Swiss real-estate market “with a certain concern,” Hildebrand told NZZ am Sonntag. Still, it’s possible that with the economy cooling and unemployment rising the property market may calm, he said.

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