Swiss Ministers Seek More Depreciation of ‘Strong’ Franc
Swiss ministers said the franc’s strength remains a concern even after its recent slide against the euro to the weakest in 20 months.
“Euphoria is misplaced” and more depreciation is needed, Finance Minister Eveline Widmer-Schlumpf told reporters at the World Economic Forum in Davos, Switzerland on Jan. 26. “The franc is still very strong.”
The Swiss National Bank imposed a ceiling of 1.20 francs to the euro in September 2011 to protect exporters as surging bond yields in Europe’s weakest economies pushed investors to seek the safest assets. The currency has since weakened as signs Europe’s debt crisis is easing sapped demand for havens.
While the franc has depreciated 3.2 percent against the euro this year, it’s still 9.1 percent stronger than the five-year average and 35 percent above an October 2007 low of 1.6828. The franc decline for a third day against the euro today, weakening 0.3 percent to 1.2501 per euro as of 2:19 p.m. London time. It earlier fell as much as 0.4 percent to 1.2515 per euro, the weakest level since Jan. 18.
Swiss Economy Minister Johann Schneider-Ammann echoed Widmer-Schlumpf’s comments, telling reporters the same day that the franc still is “too strong.” He said he “hopes it will devalue further.”
The prospects for the franc are “a question of how the euro develops,” Widmer-Schlumpf said. She said she also hopes the depreciation continues.
Both ministers said that any measures on weakening the franc were up to the central bank, whose president Thomas Jordan met with Widmer-Schlumpf in Davos.
“The national bank has its clear line, which it has stuck to,” Widmer-Schlumpf said. “They’ve done well.”
Jordan said on Jan. 25 that he expects the franc “to weaken further,” according to comments to Swiss state broadcaster SF.
“The franc is a very highly valued currency, the reason for that very high valuation is the uncertainty in the euro area, which has led to the franc being very strong,” Jordan said. “This uncertainty in the past weeks got somewhat weaker and because of this the franc has devalued,” he said.
While labor union Unia has called on the central bank to lock in the franc’s decline against the euro by adjusting its exchange-rate cap to ease pressure on employment, pro-business lobbying group Economiesuisse doesn’t see a need for action.
Axel Weber, chairman of UBS AG and former president of Germany’s Bundesbank, and Nobel Prize-winning economist Joseph E. Stiglitz both welcomed the franc’s recent weakening, according to interviews with Switzerland’s Der Sonntag newspaper published yesterday. They drew different conclusions on whether the SNB should take action, with Weber saying no change was needed, while Stiglitz said this may be a “good time” to raise the cap, the paper said.
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