Swiss Franc Advances After Central Bank Raises Growth Forecast

Swiss Franc Advances After Central Bank Raises Forecast
The Swiss franc strengthened for the first time in four days against the euro after the central bank raised its growth forecast at a policy meeting. Photographer: Gianluca Colla/Bloomberg

The Swiss franc strengthened for the first time in four days against the euro after the central bank raised its growth forecast at a policy meeting.

The currency climbed from a seven-week low against the dollar as the Swiss National Bank predicted the economy will expand 1 percent this year, twice as much as its previous estimate. Policy makers led by interim Chairman Thomas Jordan, maintained their ceiling for the currency at 1.20 francs per euro, and pledged to defend the cap with their “utmost determination.”

“With the global backdrop looking more encouraging, the SNB is likely to take a steady-as-she-goes approach on policy and maintain the current cap,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “Risks of the euro debt crisis deteriorating mean demand for the franc will be underpinned.”

The franc strengthened 0.1 percent to 1.2114 per euro at 10:32 a.m. in London after falling to 1.21469 yesterday, the weakest since Jan. 10. The currency declined 0.2 percent to 92.85 centimes per dollar after dropping to 93.35, the lowest level since Jan. 25.

The SNB forecast that consumer prices will fall 0.6 percent this year, before inflation returns in 2013 with a rate of 0.3 percent, accelerating to 0.6 percent in 2014. The Zurich-based central bank kept its benchmark interest rate at zero as predicted by all 25 economists surveyed by Bloomberg.

The franc has declined 3.8 percent in the past six months, the second worst performer after the yen, according to Bloomberg Correlation-Weighted Indexes, which tracked performance of 10 developed-nation currencies.

Franc’s Surge

The currency surged as much as 37 percent against the euro in the 12 months before the ceiling was introduced on Sept. 6 as investors bought Swiss assets as a haven from the regional financial crisis. The franc has traded between 1.20 and 1.25 per euro since Sept. 7.

The SNB spent 17.8 billion francs last year to stem what it called the currency’s “massive overvaluation.” That compared with 144 billion francs it used in the previous year to buy currencies, a policy that sparked a record loss.

Even after the cap was introduced, the Swiss currency is still stronger against the euro than it was year ago, highlighting the risk of deflation as costs for imported goods drop. The price of foreign goods fell 3.4 percent in February from a year ago.

Swiss bonds declined, with 10-year yields rising three basis points to 0.89 percent.

Switzerland’s government securities handed investors a loss of 0.8 percent this year, paring gains in the past 12 months to 8.5 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.

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