External Content

The following content is sourced from external partners. We cannot guarantee that it is suitable for the visually or hearing impaired.

(Bloomberg) -- The Swiss National Bank scrapped its currency cap after concluding it faced the prospect of ever- larger interventions, Governing Board member Fritz Zurbruegg said in an interview with newspaper Blick.

“Sums in the billions were being spent each day, and there was no end in sight,” he told the newspaper, adding that the SNB probably would have spent about 100 billion francs ($116 billion) in January alone. “We recognized that an uncontrollable increase in these risks stood in no proportion to the monetary-policy benefits.”

The interview comes a week after the SNB sent shock waves through currency and equity markets by abandoning its franc cap of 1.20 per euro and increasing a charge on deposits.

According to Zurbruegg, SNB policy makers looked at various options before the decision, including a cap on the franc against both the dollar and the euro. They concluded that returning to a freely floating exchange rate was the best option, he said. Since the SNB’s announcement on Jan. 15, the franc has been trading close to parity with the euro.

“The franc is clearly overvalued, the markets are overreacting” Zurbruegg said. “We expect that the situation won’t last.”

The prospect of quantitative easing by the European Central Bank may have been a factor in the SNB’s decision. ECB President Mario Draghi will make his first policy announcement of 2015 on Thursday in Frankfurt after the institution’s Executive Board proposed spending as much as 1.1 trillion euros ($1.3 trilion) to revive inflation.

With the cap now gone, the Swiss economy is set to suffer a slowdown, Zurbruegg said, adding that it was yet too early to venture a prediction.

In December, the SNB forecast a decline in consumer prices of 0.1 percent this year and economic growth of about 2 percent.

“We have no sign of a deflationary spiral,” he said. “There’s no threat to price stability in the medium to longer term.”

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 Jana Randow