SNB Cannot Easily Adjust Franc Ceiling, Danthine Says

The Swiss franc’s cap of 1.20 against the euro isn’t designed for fine-tuning the exchange rate, central bank Deputy Chairman Jean-Pierre Danthine said.

Labor union Unia said on Jan. 18 that the Zurich-based Swiss National Bank should lock in the franc’s decline against the single currency by raising the exchange-rate cap to 1.25 from 1.20 to protect jobs. Unia said the SNB should set a goal of weakening the franc to 1.40 per euro.

“The floor that we set in September 2011 represents an extraordinary response to an extraordinary situation, notably a sense of fear related to the crisis in the euro zone propelling the franc to unacceptable levels,” Danthine was quoted as saying by Tribune de Geneve and 24 Heures in a joint interview published today. “Today, that tension seems to be easing.”

Danthine said the franc is still too strong, responding to a question whether the ceiling should be adjusted to 1.25 to bolster exports and tourism. Still, “the policy wasn’t meant to allow a fine-tuning of the cap’s level,” he added.

The SNB introduced the franc’s 1.20 ceiling on Sept. 6, 2011, after the currency’s surge to near parity with the euro sparked deflation threats. While the franc breached the cap once, falling import costs have continued to weigh on prices.

Pressure on the franc is easing and the currency can freely move above the 1.20 ceiling, Danthine said. It has traded near the cap until this month, when greater confidence that the 15-nation euro region will manage to overcome the sovereign-debt crisis pushed it to around 1.25. The franc was trading at 1.2420 per euro at 2:32 p.m. in Zurich.

Danthine also said the currency risk to the SNB’s reserves, which amounted to 427 billion francs ($459 billion) at the end of December, is easing. He declined to comment when asked whether the central bank has been selling euros.

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