SNB’s Jordan Sees No Reason to Remove Cap on Swiss FrancCatherine Bosley
The Swiss National Bank’s cap on the franc remains appropriate given the currency’s strength and economic risks in the euro area, President Thomas Jordan said.
“We believe the franc is still highly valued and there is no risk of inflation,” Jordan said late yesterday in his home town of Biel, Switzerland. “The minimum exchange rate remains indispensable to ensure price stability in Switzerland.”
The Zurich-based central bank set a cap of 1.20 per euro on the franc in September 2011, citing the risk of deflation and a recession. It has promised unlimited currency interventions to defend the cap and Jordan repeated that commitment yesterday.
While consumer prices are falling, the Swiss economy has escaped an economic slump and managed to stay unscathed from the debt crisis that has afflicted the neighboring euro area, its biggest trading partner.
“The crisis hasn’t yet been fully overcome” in the 17-nation currency bloc, Jordan said.
The franc ceiling will stay in place until after the first quarter of 2015, according to 64 percent of 11 economists surveyed by Bloomberg News earlier this month.
The SNB has accumulated 434.7 billion Swiss francs ($477.5 billion) in foreign-currency reserves in its campaign to defend the cap. Even so, the central bank hasn’t had to intervene in currency markets for more than a year, policy makers have said.
An easing of market stress due to the euro area’s debt crisis has allowed the franc to depreciate 2 percent against the euro this year.
The franc was trading up 0.1 percent changed at 1.2318 per euro at 3:04 p.m. in Zurich today. Against the dollar it stood at 91.01 centimes.
Because of the central bank’s loose policy, the Swiss real-estate market is in the midst of its strongest ascent in two decades. The SNB has repeatedly warned of overheating, and was behind the government’s implementation of a capital buffer for banks to guard against mortgage writedowns that came into effect at the end of September.
That countercyclical buffer is a novel tool and how much of an effect it will have in preventing the increase of further real estate market imbalances is unclear, SNB Vice President Jean-Pierre Danthine said in an article published in the government magazine Die Volkswirtschaft.
Currently, the buffer is set at 1 percent of risk-weighted assets tied to residential mortgages to guard against losses on loans; it can be increase to as much as 2.5 percent.
“Given these uncertainties, further regulator measures could become necessary,” he wrote.