SNB Seen Keeping Franc Ceiling Until 2016 as ECB Eases Policy

(To see the full survey, click here.)

Oct. 15 (Bloomberg) — The Swiss National Bank is likely to keep its cap on the franc in place until at least 2016 as central bankers in the surrounding euro area loosen policy further, economists say.

Eighteen of 21 economists in the Bloomberg Monthly Survey say the SNB won’t give up its minimum exchange rate of 1.20 per euro this year or next. Just three predict an exit from the measure in 2015.

The Swiss central bank, based in Bern and Zurich, set the cap three years ago to ward off deflation after investor concern pushed the franc nearly to parity with the euro. The European Central Bank’s introduction of a negative deposit rate and announcement of plans to buy asset-backed securities has lifted the franc against the euro in recent months, intensifying speculation that the SNB could again wage currency interventions or enact its own deposit charge.

“With the ECB cutting interest rates and honing in on quantitative easing, the SNB will have no choice but to extend the timeframe of its currency cap against the euro,” said Eric Tannenbaum at Moody’s Analytics in West Chester, Pennsylvania. “The SNB will enforce this policy by either moving into negative-rate territory themselves, aggressively stepping up currency interventions, or both.”

SNB Arsenal

SNB policy makers, including President Thomas Jordan, have stressed repeatedly they stand ready to take further measures — including negative interest rates — should they become necessary. They say the central bank hasn’t intervened in currency markets to defend the cap since 2012.

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.

“I cannot give you any likelihood or any probability” for negative rates, Jordan said in an interview with Bloomberg on Oct. 10. “What I can say is that — if necessary — we take immediate action.”

SNB Vice President Jean-Pierre Danthine said last week that negative rates could be enacted if the state of affairs in the euro area took a turn for the worse. He spoke just two days after the International Monetary Fund cut its economic forecasts for 18-nation currency union and urged the ECB to consider buying sovereign debt to fight weak inflation, a move opposed by officials in some member states.

ECB Stimulus

According to a separate survey for the euro area, published earlier this week, more than half of the economists predict ECB President Mario Draghi will eventually announce a QE program of government-debt purchases similar to those carried out by the U.S. Federal Reserve and the Bank of England.

Such an easing of policy within the euro area could send the franc up further versus the euro. It has already climbed 1.6 percent against the common currency so far this year, data compiled by Bloomberg show.

“If the ECB were to go for broad-based QE that could lead to a weakening in the euro and therefore more pressure on the franc,” said Martin Gueth, an economist at LBBW in Stuttgart. “What’s no clear is if that would actually test the 1.20 limit, but if it did, I think the SNB would go for a negative rate.”

–With assistance from Andre Tartar in London.

To contact the reporters on this story: Catherine Bosley in Zurich at [e-mail]; Joshua Robinson in London at [e-mail] To contact the editors responsible for this story: Fergal O’Brien at [e-mail] Zoe Schneeweiss, Jana Randow