The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the franc, sending the safe-haven currency soaring against the euro and stocks plunging amid fears for the export-reliant Swiss economy. Only days ago, SNB officials had described the 1.20 francs per euro cap, introduced in 2011 at the height of the euro zone crisis to prevent the strong currency leading to deflation and a recession, as the cornerstone of the bank’s monetary policy.
The U-turn sent the franc nearly 30 percent higher against euro in chaotic early trading. It came a week before the European Central Bank is expected to unveil a massive bond-buying programme that might have forced the SNB to intervene repeatedly to defend the cap. “Today’s SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country,” said Nick Hayek, chief executive of Swiss watch firm Swatch.
SNB Chairman Thomas Jordan denied at a news conference that the move amounted to a “panic reaction”, saying the cap had been scrapped because it was unsustainable. “If you decide to exit such a policy, you have to take the markets by surprise,” Jordan said.