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Sept. 4 (Bloomberg) -- The Swiss National Bank could find itself defending its currency cap again via interventions in response to the European Central Bank’s interest rate cut.
The franc, on which the SNB has an upper limit of 1.20 per euro, climbed to its highest in a week after the ECB unexpectedly cut all three of its main interest rates today. The Zurich-based central bank says it hasn’t intervened to defend the minimum exchange rate in two years.
“It’s clear that the SNB will intervene again if the franc gets to 1.20,” said Maxime Botteron, economist at Credit Suisse Group AG in Zurich. “But there’s no reason to ease policy further and take supplementary measures for the time being.”
Demand for the franc has increased after ECB President Mario Draghi stepped up his rhetoric last month on policies needed to combat weak inflation with a speech in Jackson Hole, Wyoming, on Aug. 22, and hit a 21-month peak.
The SNB set the cap on the franc three years ago to ward off deflation and recession, and it has repeatedly said it will take supplementary measures, if necessary. SNB President Thomas Jordan most recently affirmed that stance in a newspaper interview on Aug. 31, saying he would “exclude no measure” to ensure monetary conditions remained adequate.
The SNB, which is scheduled to hold its next monetary policy decision on Sept. 18, forecasts stagnant consumer prices for this year, with inflation accelerating to just 0.4 percent next year and 1 percent in 2016. The SNB’s mandate is for positive rates of inflation below 2 percent. The SNB wasn’t immediately available for comment when called today.
The franc, which touched its highest since Aug. 28 in inter-day trading today, stood little changed at 1.2054 at 2:21 p.m. in Frankfurt. Against the dollar it traded at 92.50 centimes.
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