Jordan Says SNB Is Prepared for Negative Rates If Necessary

(See GMEET for more on the IMF meetings.)

Oct. 13 (Bloomberg) — The Swiss National Bank will defend its cap on the currency with all means and is ready to introduce negative interest rates if necessary, President Thomas Jordan said.

“We will enforce the minimum exchange rate if necessary,” Jordan said in an Oct. 10 interview in Washington, where he was attending the International Monetary Fund’s annual meeting. “We do not exclude any instrument that is necessary and we do not exclude specifically negative interest rates.”

The SNB set a cap of 1.20 per euro on the franc three years ago to shield the economy from the euro area’s debt crisis. It stepped up its rhetoric last month, saying it would take supplementary action “immediately” if necessary after the franc strengthened to 1.2045 per euro in early September.

“I cannot give you any likelihood or any probability” for negative rates, Jordan said. “What I can say is that if necessary we take immediate action.”

The Swiss franc closed at 1.20867 per euro on Oct. 10, down 0.2 percent. Against the dollar it stood at 95.71 centimes.

With the franc trading within one centime of its 1.20 per euro cap and European Central Bank stimulus intensifying pressure, the SNB will probably need to resume purchases to defend the level, according to 15 of 24 respondents in Bloomberg’s monthly survey of economists, published prior to the SNB’s policy announcement on Sept. 18. The bank hasn’t had to take such action since September 2012. Ten economists said the central bank may have to resort to charging banks for excess reserves they keep with it to stave off currency inflows.

Inflation Forecast

Both Jordan and SNB Vice President Jean-Pierre Danthine have said before that negative rates are in the central bank’s arsenal of instruments. Most recently Danthine said on Oct. 9 that such a measure could become necessary if the situation in the 18-nation euro area deteriorates.

The SNB, whose mandate is for positive rates of inflation below 2 percent, forecasts consumer prices increasing 0.1 percent this year. It sees them rising just 0.2 percent next year and 0.5 percent in 2016. It expects the Swiss economy to grow 1.5 percent in 2014.

The SNB’s inflation forecast “is extremely low,” Jordan said. “Even under the extreme assumption of unchanged monetary policy and under the assumption of a weakening of the Swiss franc, inflation goes up only very very slowly.”

–With assistance from Catherine Bosley in Zurich.

To contact the reporters on this story: Stefan Riecher in Washington at [e-mail]; Zoe Schneeweiss in Zurich at [e-mail] To contact the editors responsible for this story: Emma Charlton at [e-mail] Gail DeGeorge, Paul Badertscher