Swiss central bank's Jordan says ready to intervene to defend franc cap

Credit: Reuters/Thomas Hodel

Swiss National Bank SNB Chairman Thomas Jordan speaks to the media in Bern June 19, 2014.

The franc has strengthened in recent weeks towards the 1.20 franc per euro threshold the SNB has set as a minimum exchange rate, mainly due to speculation that the European Central Bank may further loosen monetary policy in the euro zone to stimulate growth.

'The franc is still highly valued. Enforcing the minimum exchange rate of 1.20 is absolutely central to ensure adequate monetary conditions in Switzerland,' Thomas Jordan said in an interview with NZZ am Sonntag, adding an appreciation of the franc would pose the risk of deflation.

'We continue to stand ready (to defend the cap) by unlimited currency purchases if necessary,' Jordan said.

The SNB has not had to intervene in the forex market to defend the cap for the last two years, he said. It introduced the minimum exchange rate in 2011 to prevent the franc's strong appreciation from further hurting the economy.

Asked whether the SNB might consider raising the minimum exchange rate to 1.25 per euro, he said: 'We're not doing monetary policy fine-tuning, but we don't rule out any measure that could help to ensure price stability in the medium term.'

Switzerland's economy faces increased macroeconomic and geopolitical risks that may lead the SNB to cut its economic outlook at its meeting in September, Jordan said.

'Macroeconomic risks have increased over the last weeks. New geopolitical risks have emerged and we've seen weaker than expected international macro data, mainly in Europe and Latin America,' he said when asked whether the SNB would maintain its outlook for 2 percent growth this year.

'There is no doubt that the environment for Switzerland has deteriorated,' he said.

Jordan also said it was good to see that the dynamics in mortgage lending and prices in the Swiss real estate market had weakened somewhat, also thanks to measures such as the anti-cyclical capital buffer and self-regulation.

'But there are still imbalances. It is much too early to drop our guard. We have to keep an eye on the development and exhort banks to be cautious.'

(Reporting by Silke Koltrowitz; Editing by Hugh Lawson)

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