SNB sees advantage of strong franc

Swiss National Bank looks at advantages of strong franc Keystone

Swiss National Bank (SNB) chairman Jean-Pierre Roth says he sees advantages to a strong Swiss franc.

The franc has recently weakened against the euro, in line with what most economists say is a desirable trend. The franc hit record highs against the euro in September, prompting the SNB to cut interest rates.

“Countries with weak currencies can only dream about escaping the vicious circle of a weak currency, inflation, further currency weakness and higher interest rates,” Roth said in an interview with the Swiss weekly “Facts” magazine.

He noted at the outset of its traded life, the euro was valued at around SFr1.60 and has since sunk to roughly SFr1.47.

The euro has risen from its historic SFr1.4391 low against the franc on September 21, but it is still below the SFr1.50 level, which Swiss exporters say they favour.

Roth said more than half of the euro’s nearly nine per cent depreciation against the franc over three years was due to the higher inflation rate in the euro zone. Swiss economic growth has also been stronger than in the euro zone.

“We know of course that an appreciation [of the franc] puts a brake on the economy. But at the same time, it also makes imports cheaper, which lowers inflation. With that, we gain leeway for interest rate cuts. We use that leeway, as we have shown on several occasions,” Roth said.

The SNB has cut interest rates four times this year, most recently lowering its benchmark target for three-month Swiss London Interbank Offered Rate (Libor) by half a per cent last Friday to 1.25-2.25 per cent.

swissinfo with agencies