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Swiss Franc Battle May Not Need Tougher Tools, Minister Says

Swiss Economy Minister Johann Schneider-Ammann said pressure on officials to take tougher measures to counter a possible surge in the franc has eased in recent months.

“Last year, in the most difficult phase of the franc crisis, we discussed a range of measures and worked to get them ready should the situation change dramatically,” Schneider-Ammann said in an interview on Sept. 3 in Bern. “But this need doesn’t appear to be imminent. There’s less of a risk than a year ago that these measures will be used.”

Officials have been weighing emergency actions such as capital controls and negative interest rates in case the euro-area debt crisis escalates after the franc’s ascent to a record prompted the central bank to impose a ceiling of 1.20 versus the euro a year ago. Schneider-Ammann said European leaders’ pledge to do everything to safeguard the euro has been “decisive.”

The Swiss currency, considered a haven in times of turmoil, traded at 1.2011 versus the euro as of 10:01 a.m. in Zurich. It was at 95.91 centimes versus the dollar.

While Schneider-Ammann wouldn’t elaborate on tools, Finance Minister Eveline Widmer-Schlumpf said in June that a government-led panel in cooperation with the Swiss National Bank is “regularly assessing the implementation of additional, complementary measures” that could be taken as a “last resort.”


“These measures are part of the wide range that can be assessed and discussed,” Schneider-Ammann said, when asked about capital controls and negative rates. He also said he remains “skeptical” about negative rates, which “didn’t really work out as expected” when last used in the 1970s. “But overall, it’s mainly a discussion of advantages and disadvantages that should be led by the central bank.”

Switzerland’s need for tougher measures has eased after European officials stepped up their crisis response. The euro has gained about 3 percent against the dollar since Aug. 2, when European Central Bank President Mario Draghi said the ECB may intervene in bond markets in tandem with the region’s bailout fund. The Frankfurt-based central bank holds its next policy meeting tomorrow.

‘Absolutely Decisive’

“It’s absolutely decisive that the European environment remains stable, that confidence in the European financial system isn’t questioned,” Schneider-Ammann said. At the moment, “the situation is under control and that’s why we don’t need to give details on measures. They would be extremely extraordinary steps.”

The SNB will hold its next monetary-policy meeting on Sept. 13, with President Thomas Jordan saying this week the franc ceiling remains the “best policy” for now. The central bank will defend it with the “utmost determination,” he said.

Schneider-Ammann echoed that view, saying the measure was of “decisive importance” for the economy.

“I’ve always said it was absolutely necessary and it remains necessary,” he said. “The purchasing power parity remains around 1.30, but interestingly there are no longer any requests that the ceiling should be increased. There’s a certain awareness that the SNB takes a certain risk.”

Economic Risks

In March, Schneider-Ammann had said the franc’s so-called purchasing power parity versus the euro is at 1.35 or 1.40. The Swiss currency has depreciated 7.6 percent in the past year.

Still, a drop in exports was among the factors that led the Swiss economy to an unexpected contraction in the second quarter. Bruno Parnisari, an economist at the State Secretariat for Economic Affairs, said in an interview the government may lower its 2012 growth forecast from 1.4 percent when it publishes new projections on Sept. 18.

Schneider-Ammann said he sees “more of a flat development overall” in the second half.

“There’s unfortunately no upward risk” to the outlook for this year, he said. “I’m aware that the situation will be more difficult in the third and fourth quarters. Still, I don’t have any reason for pessimism.”

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