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Hildebrand Says SNB Can Take More Measures as Cap Kept on Franc

Cap Kept on Franc
The franc strengthened as the Swiss National Bank left the franc’s minimum exchange rate at 1.20 per euro today. Photographer: Chris Ratcliffe/Bloomberg

Dec. 15 (Bloomberg) -- Swiss central bank President Philipp Hildebrand said he’s ready to act if deflation risks emerge after officials maintained their limit on the franc, resisting pressure from exporters to further curb its strength.

The currency rose as the Swiss National Bank left the franc’s minimum exchange rate at 1.20 per euro today. That’s in line with the forecasts of nine out of 13 economists in a Bloomberg News survey. The Zurich-based central bank also maintained its benchmark interest rate at zero.

The SNB has defended the limit for three months without a breach after pledging to buy “unlimited” quantities of foreign currency. Officials have weighed the risks of seeking a higher franc floor at a time of a worsening European fiscal crisis against the threat of deflation, which Hildebrand said today isn’t yet a danger for the Swiss economy.

The SNB has adopted “a wait-and-see stance,” said Claude Maurer, an economist at Credit Suisse Group AG in Zurich. “It’s not unlikely that they will lower their forecast for inflation and economic growth in the next year and take further measures which might include raising the limit on the franc.”

The SNB in its statement today reiterated its pledge to defend the exchange rate limit with “utmost determination.” It predicted consumer prices to drop 0.3 percent in 2012 and stopped short of warning of deflation risks.

Hildebrand ‘Ready’

“The SNB stands ready to take further measures at any time if the economic outlook and the risk of deflation so require,” Hildebrand said as he and colleagues Thomas Jordan and Jean-Pierre Danthine briefed journalists in Bern. “The SNB is expecting temporarily negative inflation rates, but not a sustained decline in the general price level.”

The franc, seen as a haven in times of turmoil, gained as much as 37 percent against the euro in the year before the SNB imposed the limit on Sept. 6, as European leaders failed to contain the debt crisis. It reached a record 1.0075 on Aug. 9.

The currency strengthened the most in eight weeks and traded at 1.22698 per euro as of 10:30 a.m. in Zurich today after the decision, up more than 0.8 percent on the day.

“Even at the current rate, the Swiss franc is still high and should continue to weaken over time,” Hildebrand said.

The SNB had a record loss of $21 billion in 2010 after it purchased foreign currencies at an unprecedented pace in the 15 months through June to stem franc gains. The central bank’s currency holdings dropped to 229.3 billion francs ($245 billion) at the end of November from 245 billion francs.

Since it instituted its currency limit, the SNB has sought to use tougher language such as Hildebrand deployed today to help defend the floor.

Working ‘Brilliantly’

“The central bank clearly is relying on verbal intervention, which has worked brilliantly so far,” Peter Rosenstreich, chief currency analyst at Swissquote Bank SA in Geneva, said in an e-mail. “However, as risks in Europe intensify we should see renewed pressure” on the franc “and eventually actual a test of the SNB commitment.”

A further “escalation” of Europe’s sovereign debt crisis can’t be ruled out, the SNB said today.

“Given our country’s close relations with the euro area, Switzerland’s economic prospects are highly dependent on how the crisis develops,” it said.

Switzerland’s economy already faces a negative inflation rate. Consumer prices fell 0.5 percent in November from a year earlier, the biggest drop in more than two years, after declining 0.1 percent the previous month.


“Exchange-rate interventions are the main instrument left in the SNB’s monetary toolbox at this point,” Dirk Schumacher, an economist at Goldman Sachs Group Inc. in Frankfurt, said before the decision. “The combination of a very low point for inflation at the beginning of the recession places the SNB in a very uncomfortable position.”

Switzerland’s economy is showing increasing signs of a slowdown, adding pressure on companies to cut costs. The KOF economic leading indicator fell in November to the lowest in more than two years and manufacturing output contracted for a third month. Novartis AG, Europe’s second-largest pharmaceutical company, has said it plans to eliminate 2,000 jobs.

Holcim Ltd., the world’s No. 2 cement maker, said last month franc gains reduced third-quarter earnings. Swatch Group AG Chief Executive Officer Nick Hayek has called the franc “difficult” and the Swiss Employers’ Association said on Nov. 7 the currency is still overvalued.

“The substantial appreciation of the Swiss franc over the summer is weighing heavily on the Swiss economy,” the SNB said in its statement, as it predicted growth will slow from a range of 1.5 to 2 percent this year to 0.5 percent in 2012.

Currency Forecasts

Still, economists expect the Swiss exchange rate to remain steady over the coming quarters. The currency will trade at 1.23 per euro in the first quarter of 2012, according to a Bloomberg survey of 36 economists. In the fourth quarter of next year, it may average 1.26 per euro, it showed.

UBS AG and Credit Suisse Group AG, which last month announced plans to cut risk-weighted assets at their investment banking units, need to make “additional efforts” to improve their capital ratios, Jordan said in a statement today. The banks’ loss-absorbing capital is “still low, given their risk profile and the considerable uncertainty in the international environment,” he said.

To contact the reporter on this story: Klaus Wille in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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