Swiss National Bank President Thomas Jordan reiterated his pledge to intervene in currency markets, saying the central bank’s policy of negative rates should help weaken the franc.
“The SNB’s monetary policy is expected to weaken the Swiss franc over time and the central bank has also made clear that it will remain active in the foreign exchange market, if necessary,” Jordan wrote in a paper prepared for the Kansas City Federal Reserve’s annual retreat in Jackson Hole, Wyoming on Friday.
The SNB stunned markets in January by giving up its three-year-old ceiling on the franc, causing the currency to surge against the euro. In a bid to dissuade investors from holding francs, the SNB also cut its deposit rate to minus 0.75 percent and has repeatedly said it would intervene to keep the franc in check. The central bank foresees consumer prices falling 1 percent this year. It will update that inflation forecast at its policy review on Sept. 17.
The franc, which hit a record 85.17 centimes per euro after the SNB’s Jan. 15 announcement, has depreciated in recent weeks and traded as low as 1.09615 per euro on Aug. 12.
The economy unexpectedly expanded last quarter as investment and private consumption rose, according to data published on Friday. Economists in a Bloomberg survey had predicted a second-quarter contraction, which would have pushed Switzerland into its first recession in six years.
Currency strategists see the franc at 1.10 per euro in 2016, according to the median of analysts’ predictions compiled by Bloomberg. That would help growth momentum.
According to Jordan, inflation expectations remain “well anchored” in Switzerland, suggesting the SNB’s commitment to ensuring medium-term price stability remains credible.
Unconventional policy, such as the SNB’s cap of 1.20 francs per euro, “involves risks, their pros and cons must be regularly assessed,” Jordan said. “Importantly, these policies must also be adjusted at the right moment if they become unsustainable due to changes in the international environment.”