SNB Has Room for Further Deposit Rate Cut, Jordan Says

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The Swiss National Bank can lower its deposit rate further to counter a “clearly overvalued” franc, President Thomas Jordan said.

“There’s clearly a limit to the negative rate -- the question is exactly where it is,” he told Swiss radio SRF in an interview broadcast Saturday. “At the current level of minus 75 basis points, the limit surely isn’t reached.”

The SNB cut its interest rate on sight deposits on Jan. 15 when it abandoned the cap of 1.20 franc per euro it introduced in 2011. Jordan said policy makers acted in anticipation of the European Central Bank’s announcement of quantitative easing, which would have required ever larger interventions to defend the ceiling.

Since then, sight deposits -- cash commercial banks hold with the central bank -- have risen, a sign the SNB may have sold francs.

“We look at the foreign exchange-market situation as a whole, and should there be a need, we’re active -- but we can’t speak about our transactions,” Jordan said.

Sight deposits of domestic banks continued to increase in the week ending Feb. 6, rising 0.4 percent to 384.9 billion francs ($416 billion) from a week earlier, data published on the SNB’s website Monday showed.

Dramatic Steps

Asked whether Switzerland would enact a form of capital controls, Jordan said “it’s not a measure that is at the forefront at the moment.”

While any additional SNB action such as cutting the deposit rate further or implementing capital controls would be “dramatic,” it’s “certainly possible,” Zuercher Kantonalbank Chief Executive Officer Martin Scholl said in an interview with Neue Zuercher Zeitung published on Sunday.

With the franc having appreciated almost 16 percent against the euro and 8 percent against the dollar in January, Swiss economic growth is set to lose pace. The SNB’s most recent forecast, issued in December when the cap was still in place, was for 2015 growth of about 2 percent.

“At the moment, it is still hard to gauge how big the slowdown of growth will be,” Jordan said. “It’s entirely possible that one or the other quarter proves negative.”