Economists Divided on Swiss Central Bank Decision

Jeremy Cook, chief economist at currency dealer World First

The Swiss National Bank has thrown in the towel and given up trying to weaken its currency in the face of outright deflation and a falling European single currency.

This is a complete capitulation. The pressure and belief that the European Central Bank will launch a bond buying programme in the coming week – further devaluing its currency – has been enough to make the Swiss National Bank step out of the way. Nobody wins when you stand in the way of a freight train, except for the train.

Ipek Ozkardeskaya, market analyst at Swissquote Bank

The panic situation in the Swiss franc is expected to continue until a new game plan [emerges]. In its official communication, the SNB stated that “divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. […] In these circumstances, […] reinforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified”. But we believe that any intervention from the SNB would be similar to dropping a handful of sand on the beach. The volatilities are expected to continue.

Alex Dryden Global Market Strategist at JP Morgan Asset Management

This move wasn’t completely unexpected; it was becoming increasingly painful for the SNB to maintain this support for the Swiss currency cap. That said, the additional interest rate cut is a surprise and it will now mean investors will have to pay around 80 basis points to hold Swiss currency on deposit for three months. The SNB hopes that this will dissuade investors from viewing the Swiss Franc as a safe-haven and therefore avoid a negative shock for the Swiss economy.

via The Guardian

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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