SNB Stands Ready With Further Measures If Needed, Zurbruegg Says
Oct. 21 (Bloomberg) — The Swiss National Bank is prepared to take measures to supplement its cap on the franc, Governing Board Member Fritz Zurbruegg said.
“There’s no discussion, we will with utmost determination make sure that the minimum exchange rate is not questioned, either with unlimited purchases of foreign currency, and if necessary we will take further measures immediately ,” he said in a speech in Geneva today. “We have a franc that is highly valued.”
The SNB, based in Zurich and Bern, set a ceiling of 1.20 per euro on the franc three years ago to ward off deflation and a recession. SNB policy makers have repeatedly pledged to take steps, including negative interest rates, to supplement the cap immediately if warranted. The European Central Bank has already cut its deposit rate to minus 0.2 percent in a bid to stimulate price growth.
“The impact on the financial system is probably stronger than the measure that’s been taken in the ECB because we do not have temporary excess liquidity in the system as is the case in the ECB, we have permanent liquidity in the system,’ he said. ‘‘Sight deposits are there and someone will take a hit.”
At the SNB, there are more than 300 billion francs ($317 billion) of domestic banks’ sight deposits. Sight deposits are cash-like deposits held by commercial banks with the central bank.
Inflation Outlook
Last month, a deterioration of the economic outlook and a greater risk of deflation already prompted the SNB to cut its view on 2014 Swiss growth to 1.5 percent from 2 percent.
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.
Given policy easing by the European Central Bank, the SNB is likely to keep its cap on the franc in place until at least 2016, according to Bloomberg’s monthly survey of economists, published earlier this month.
The SNB’s loose monetary policy has caused a real estate market boom prompting the government to require banks to hold more capital as a buffer to guard against mortgage writedowns.
“We are very aware that financial stability risks can emerge during this period of low interest rates,” Zurbruegg said. “We see that we have some moderation in the housing market prices and in the mortgage rates.”
To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.net Zoe Schneeweiss, James Kraus
