SNB Jordan Says Franc ‘Overvalued,’ Threatens Interventions

The Swiss National Bank is prepared to intervene in currency markets, President Thomas Jordan said.

“We will remain active in the foreign exchange market as necessary in order to influence monetary conditions,” he said in a speech at the central bank’s annual general meeting in Bern on Friday.

Swiss policy makers have made that pledge repeatedly in recent months, after giving up a cap of 1.20 per euro on the franc in mid-January. To compensate for the loss of the minimum exchange rate and dissuade investors from holding francs, the SNB lowered its deposit rate to minus 75 basis points.

The cap exit caused the franc to appreciate sharply and the Swiss economy now faces a year of falling consumer prices and lower growth.

“The Swiss franc is significantly overvalued overall,” Jordan said. “A correction of this overvaluation is to be expected over time.”

Jordan said the Swiss economy will probably successfully overcome its current challenges. Moreover, the negative interest rates won’t become the “new normal,” he said.

“If the global economy recovers further and growth in the euro area increases again more robustly, this unsatisfactory situation will change as well,” he said.

The SNB foresees an inflation rate of minus 1.1 percent for 2015. It predicts growth of “just under” 1 percent for this year.

Remedial Measures

The SNB has the legal status of a corporation, with the majority of shares held by cantons and cantonal banks. There are also some 2,000 private investors, who receive a dividend but whose voting rights are extremely limited.

Yet with the central bank struggling to fulfill its price stability mandate and joblessness likely to inch up, trade unionists and some lawmakers are taking the SNB to task for the January decision, and calling for remedial measures. According to analysts, these are chiefly bids to win votes in the Oct. 18 national election and not a sign the central bank will be browbeaten into reversing course.

At the AGM, shareholders were given the chance to address Jordan directly. They asked about the dividend, about the ability of foreigners to buy SNB shares, about reducing balance sheet risks, and about why the SNB hasn’t sold off some of its foreign exchange reserves. Not one told the SNB’s rate setters they should not have gotten rid of the ceiling.

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