Swiss central bank Vice Chairman Jean-Pierre Danthine said he welcomes the franc’s recent weakening versus the euro.
Asked whether he’s happy with the depreciation of the franc, Danthine told Bloomberg News at a conference in Lausanne, Switzerland, “of course.” He said a further weakening will depend on developments in the euro region after the European Central Bank pledged to purchase government bonds to fight the fiscal crisis. Still, “markets need to be convinced,” he said.
The Swiss National Bank, led by Thomas Jordan, has piled up foreign-currency reserves worth 418 billion francs ($447 billion), with policy makers on Sept. 13 reiterating their pledge to defend the franc ceiling of 1.20 versus the euro with the “utmost determination.” Pressure on the cap eased after the ECB last month announced plans to buy bonds of distressed nations in tandem with Europe’s rescue fund to overcome the sovereign debt crisis.
The franc, which is perceived as a haven in times of turmoil, strengthened against the euro for a fourth day and traded at 1.20893 as of 4:47 p.m. in Zurich. It declined to 1.2184 on Sept. 17, the weakest in eight months.
The Zurich-based central bank introduced the ceiling in September 2011 after the Swiss currency surged to near-parity with the euro, eroding exporters’ competitiveness and threatening to spark deflation. Danthine said at the conference the ECB’s bond plan has helped improve the situation “at least in the short term and could mean a turning point.”
Still, the franc remains “strong” and the SNB won’t tolerate any further appreciation, he said.
“Despite a certain easing of the exchange-rate situation over the past week, challenges of the strong franc haven’t yet been diffused,” Danthine said. “The expected depreciation of the franc hasn’t yet materialized. Based on this, it’s clear that the SNB will maintain its minimum exchange rate of 1.20.”
The Swiss economy will expand about 1 percent this year, and then “gradually gain momentum” in 2013, according to Danthine. The SNB last week lowered its 2012 growth forecast from 1.5 percent, without providing an estimate for 2013.
With borrowing costs at zero, the SNB has repeatedly warned of risks in the property and mortgage markets. Danthine said policy makers will remain “vigilant” on developments, adding there’s an “increasing threat of imbalances.”
“At the moment, we’re not talking of a bubble, but it’s clear that the dynamic is very, very strong,” he said. “It’s a dynamic that is not in line with economic fundamentals.”