The Swiss National Bank hasn’t had to intervene in currency markets to protect its franc ceiling for more than a year, SNB President Thomas Jordan said, adding that the measure remains in place if needed.
“Despite recent turbulence on foreign-exchange markets in emerging economies, the Swiss franc has settled against the euro since September 2012 at slightly above the minimum exchange rate of 1.20” per euro, Jordan said in Washington yesterday. “Accordingly, the SNB did not have to enforce the minimum exchange rate for over a year now.”
While an easing of the euro-area debt crisis alleviated some of the pressure on the franc, Jordan said the currency’s value is “still high” and that the SNB is maintaining the cap it introduced more than two years ago. The central bank spent 188 billion francs ($208 billion) enforcing the limit in 2012, equivalent to almost one-third of Switzerland’s annual output.
The Zurich-based SNB implemented the cap in September 2011 after the franc came close to parity with the bloc’s currency. The franc has depreciated about 1.9 percent versus the euro since the European Central Bank announced an unprecedented bond-buying program in September 2012 to defend the euro. It was at 1.2294 per euro at 6:47 a.m. in Zurich.
The SNB’s foreign-currency reserves, about half of which are in euros, have held steady in the past year. They stood at 432 billion francs at the end of last month, compared with about 430 billion francs a year earlier. They were 282 billion francs in September 2011.
“The risks in the world economy are still to the downside and the Swiss franc is still high,” Jordan said yesterday, echoing the SNB’s most recent monetary-policy assessment on Sept. 19, when it maintained the cap and left the band for the benchmark interest rate unchanged at zero percent to 0.25 percent.
He also said the cap is the “right tool for ensuring price stability in Switzerland in the foreseeable future.”
“With short-term interest rates close to zero, the minimum exchange rate can prevent an undesirable tightening of monetary conditions in the event that upward pressure on the Swiss franc should intensify once again,” Jordan said. “The SNB stands ready to enforce the minimum exchange rate and take further measures as required.”
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