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(Bloomberg) -- The Swiss National Bank is prepared to wage currency-market interventions as the franc remains “overvalued,” President Thomas Jordan said.
The SNB will be “active in the foreign exchange market, should this prove necessary in order to influence monetary conditions,” Jordan said in Brussels on Tuesday. “The significant over-valuation of our currency means that the Swiss economy, notably the sectors exposed to international competition, is currently facing strong headwinds.”
Since abandoning a cap on the franc of 1.20 per euro on Jan. 15, SNB policy makers have repeatedly said that they’re prepared to wage further interventions. Even so, central bank data suggest that it may have stopped intervening on Jan. 29.
The SNB’s decision to give up its three-year-old ceiling -- a week before the European Central Bank announced a quantitative-easing program -- sent shock wages through equity and currency markets and caused the franc to rise as much as 41 percent against the euro to the strongest level on record. To discourage investors from buying francs, the SNB cut its deposit rate to minus 0.75 percent.
Jordan said the negative rate on sight deposits -- cash that commercial banks hold with the central bank -- will have a “corrective effect” on the franc’s valuation.
The prospect of the ECB’s bond-purchase program led to more pressure on the cap and made it “unsustainable,” Jordan said. “The costs of maintaining the floor would have been out of all proportion to the benefits.”
To contact the reporters on this story: Alessandro Speciale in Brussels at firstname.lastname@example.org; Catherine Bosley in Zurich at email@example.com To contact the editors responsible for this story: Fergal O’Brien at firstname.lastname@example.org Zoe Schneeweiss, Paul Gordon