Swiss central bank defends franc move despite turbulence

FE Team | Published: January 18, 2015 00:00:00 | Updated: November 30, 2026 06:01:00

GENEVA, Jan 17 (AFP) : Switzerland's central bank on Saturday stood by its shock decision to let the franc soar, insisting the subsequent turbulence rocking global markets and the Swiss economy since the move would eventually subside.
"This was not an easy decision... (but) we are convinced it is the right one," Swiss central bank chief Thomas Jordan said in an interview published in Swiss dailies Le Temps and NZZ Saturday.
The Swiss National Bank (SNB), he said, had determined that by continuing to artificially hold down the franc, "it risked losing control of its monetary policy in the long term."
Jordan's comments came after the bank stunned markets Thursday with its decision to abandon the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.
This Swiss currency has since gained around 20 per cent against other currencies and is currently trading at around parity with the euro.
The soaring franc caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand and was seen as a significant threat to Switzerland's export-dependant economy.
The Swiss stock exchange's main SMI index has plunged more than 14 per cent since Thursday's announcement.
Swiss banking giant UBS said the SNB's decision would deliver a severe blow to economic growth, slashing its forecast to just 0.5 per cent expansion this year from its previous estimate of 1.8 per cent.
The yield on Swiss 10-year bonds on Friday meanwhile entered negative territory for the first time, slipping to -0.031 per cent, meaning lenders will now have to pay to lend money to the country.
"The strong franc is threatening the entire Swiss system," the Tribune de Geneve (TdG) daily lamented Saturday, adding: "The future looks dark."
Jordan said Switzerland's central bankers, who unanimously agreed to scrap their long-drawn efforts to hold down the value of the franc, "were aware that this decision could have a major impact on markets."
"The markets should gradually stabilise," he said, admitting though that "it could take time."
The SNB had been defending the exchange rate floor since September 2011 in an effort to protect the country's vital export and tourism industries, even buying massive quantities of foreign currencies to do so.
The rate was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. More recently, the Russian ruble crisis put renewed pressure on the franc.
Jordan insisted the efforts to rein in the franc were no longer justified, insisting the Swiss economy was in a much better place than it had been when the cap was introduced.
"We gave the Swiss economy time to adapt to the new situation. A period of three years is not negligible," he said, stressing that "the currency cap from the beginning was supposed to be an exceptional and temporary measure."