Swiss Central Banker Says Bank Will Act if Needed

The Swiss National Bank can take measures to supplement its cap on the franc “immediately,” should such steps be warranted, its President Thomas Jordan said.

“The minimum exchange rate remains for the foreseeable future the key monetary policy instrument,” he said today in a speech in St. Gallen, Switzerland. “We’re prepared to buy unlimited amounts of foreign currencies and, if necessary, take further measures immediately.”

Three years ago, the SNB set a cap of 1.20 per euro on the franc to fend off deflation and a recession. SNB policy makers have repeatedly pledged to take further measures if warranted to safeguard the Swiss economy, a view Jordan reiterated today.

“We will continue to defend the minimum exchange rate with utmost determination,” he said. “The franc remains highly valued, and we have no inflation risks in Switzerland.”

The SNB cut its inflation and growth forecasts last week, due to weak momentum in the euro area, the biggest destination for Swiss exports. The SNB, based in Zurich and Bern, sees output expanding “just below” 1.5 percent this year, compared with its previous forecast of 2 percent, and consumer prices rising 0.1 percent. It foresees inflation rates of 0.2 percent for 2015 and 0.5 percent in 2016, down from an earlier prediction for rates of 0.3 percent and 0.9 percent respectively.

Some economists have speculated the SNB could mimic the European Central Bank and enact a charge on banks’ excess reserves to stem a rise in the franc. The Frankfurt-based ECB enacted a negative deposit rate in June and deepened it to minus 0.2 percent earlier this month.

The franc stood little changed against the euro at 1.2075 at 7 p.m. in Zurich. Against the dollar the franc stood at 93.99 centimes.

The SNB hasn’t intervened in currency markets to defend the 1.20 per euro cap in two years, Jordan said in an interview last week.

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza