SNB Officials Eating Words Risk Long-Lasting Market Indigestion
(Bloomberg) — Switzerland’s central bank officials have just eaten their words, risking lingering indigestion in financial markets.
Just three days ago, Swiss National Bank Vice President Jean-Pierre Danthine said the franc ceiling “must remain the pillar of our monetary policy.” That echoed similar regular pronouncements from SNB policy makers, including his boss, Thomas Jordan, who said on Jan. 5 that the cap is “absolutely central” for the Swiss economy.
The shock abandonment today of the SNB’s primary policy of the past three years may now leave investors warier of taking officials’ words at face value, according to economists including Karsten Junius, chief economist at Bank J. Safra Sarasin AG in Zurich. By scrapping one tool, the franc cap, Jordan risks blunting the effects of another.
“The SNB’s credibility has suffered a bit,” said Junius, a former economist at the International Monetary Fund. “Statements will get read in the future with a bit more caution. Verbal interventions will hardly work any more.”
The central bank’s regular pledge to defend the franc cap with “utmost determination” had become part of the institution’s brand, not least because of the success of that policy in protecting the country’s domestic economy. For George Buckley at Deutsche Bank AG, those words are hard to reconcile with the SNB’s new policy stance.
“Their commentary now means nothing,” he said. “This is not utmost determination, is it?”
SNB President Jordan today defended the surprise move, saying that a tool like the cap would always need to be abandoned unexpectedly. Anatoli Annenkov at Societe Generale SA agrees.
“It’s something we aren’t used to anymore because most central banks are talking about warning markets, improving communication, not surprising anymore, ” he said by phone from London. “But in such circumstances, there’s basically no other way to do this. Markets would have speculated, positioned themselves beforehand.”
–With assistance from Craig Stirling in London.
To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net; Stefan Riecher in Frankfurt at sriecher@bloomberg.net To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Zoe Schneeweiss, Fergal O’Brien
