April 14 (Bloomberg) -- The cap on the franc versus the euro will remain in place for the foreseeable future, Swiss National Bank President Thomas Jordan said.
“We will enforce the minimum exchange rate, this is very, very important,” Jordan said in an interview in Washington two days ago. “The Swiss franc remains highly valued, and in order to maintain adequate monetary conditions in Switzerland so that we can maintain price stability, and in order to not fall back into negative inflation, we have to maintain the minimum exchange rate.”
In a bid to prevent deflation and a recession, the Zurich-based central bank set a cap on the franc of 1.20 per euro in September 2011. Jordan affirmed last month that the cap will remain necessary for the foreseeable future, citing stagnant consumer prices.
In a panel discussion during the International Monetary Fund’s meeting this past weekend, Jordan said Switzerland faced a “low inflation situation.”
According to the Bloomberg News monthly survey, the SNB will not allow the ceiling to lapse in 2014, because of demand for safe assets due to tensions in Ukraine and potential policy easing in the euro area.
More expansive policy by the European Central Bank could prompt appreciation pressure on the franc. ECB President Mario Draghi said two days ago in Washington that the strong euro could trigger more monetary stimulus, potentially raising the pressure on the SNB to act to enforce its cap.
“We have a strong euro against the dollar, and we have an even stronger Swiss franc against the dollar, so what we need is probably both a weakening of the Swiss franc and a weakening of the euro against the dollar,” Jordan said.
The franc was up 0.1 percent against the euro at 1.2149 at 8:16 a.m. in Zurich today. Against the dollar it was down 0.2 percent at 87.78 centimes.
In its annual assessment of the Swiss economy, the IMF last month gave the SNB a green light on negative interest rates, saying it could charge commercial banks on their excess reserves if the franc faces another bout of pressure.
SNB Board member Fritz Zurbruegg said on March 27 that he and colleagues were prepared “from an operational point of view” to use negative interest rates as a reinforcement.
The Swiss real-estate market has been a source of concern for the SNB, as its expansive monetary policy has kept borrowing costs for home purchases low. Mortgage lending has grown at a faster pace than the economy, and between 2008 and 2013 apartment prices rose by a quarter.
In a bid to prevent mortgage writedowns and ensure what the central bank calls a “soft landing,” the government last year forced banks to hold additional capital on mortgages. The buffer, which it doubled to 2 percent in January, can be raised as high as 2.5 percent.
The SNB expects the Swiss economy to grow “roughly 2 percent” in 2014, Jordan said. First-quarter figures may reveal “some indicators that show that we were more on the weaker side than on the stronger side. But so far we do not have any new figures and the forecast is still 2 percent on the aggregate basis” for the year, he said.
To contact the editors responsible for this story: Craig Stirling at email@example.com Kevin Costelloe, Paul Gordon