SNB Vows to Defend Franc Cap as ECB Move Sustains Pressure

(Updates with economist comment in fourth paragraph. To watch the SNB’s press conference, click here.)

June 19 (Bloomberg) — The Swiss National Bank pledged to keep defending its ceiling on the franc, saying it was “closely monitoring” the effect of the European Central Bank’s stimulus campaign for the euro region and would take further action if necessary.

The Zurich-based central bank, led by President Thomas Jordan, held its franc cap at 1.20 per euro and its target range for three-month Libor unchanged at zero to 0.25 percent, as forecast by all economists in a Bloomberg News survey.

Set in September 2011 at the height of the euro area’s fiscal crisis, the minimum exchange rate has protected the Swiss economy from deflation and a recession. While the SNB hasn’t had to intervene to protect the cap in almost two years, the franc has failed to weaken as predicted by the central bank amid low inflation and subdued growth in the single-currency region.

“What is certain is that expectations of an early end to the floor under the franc have been killed by the ECB announcement,” Julien Manceaux, economist at ING in Brussels, said via e-mail. “We reiterate our opinion that the floor will be maintained until at least the end of 2016.”

Investor unease about the euro area’s economic prospects, as well as the conflict between Russia and Ukraine, has renewed interest in haven currencies like the franc, which has advanced 0.8 percent against the euro since the start of the year.

Geopolitical Tension

“Downside risks remain substantial,” Jordan said at a press conference in the Swiss capital of Bern, citing the possibility of geopolitical conflicts worsening, the need for further consolidation of public sector finances in the euro area and structural problems in various emerging economies.

Given the franc’s high value and stagnant consumer price growth, “it’s not time for an exit from our policy,” Jordan said. “We will continue this policy for the foreseeable future.”

The franc was little changed today, up less than 0.1 percent at 1.2173 per euro as of 10:43 a.m. in London. The currency has remained weaker than 1.21 per euro since January 2013, more than a centime off the SNB’s minimum, and was unperturbed by the ECB’s June 5 decision of taking its deposit rate negative.

The ECB’s move prompted economists in Bloomberg’s monthly survey to extend forecasts for how long they see the ceiling in place. Only six of 22 participants in the June poll said the SNB will exit the cap by the end of 2015, compared with a month earlier, when half of the economists questioned said the SNB would do so by then.

Nothing Excluded

“We’ve said repeatedly that we don’t exclude any measure and that the introduction of negative rates is a possible option,” Jordan said, responding to a question of what the SNB might do if the franc were to experience further appreciation pressure.

The International Monetary Fund said the SNB should consider imposing a charge on sight deposits of commercial banks if the franc strengthens against the euro.

Not a single economist in the Bloomberg survey saw the SNB enacting measures to supplement the cap this month.

“With the euro area becoming more stable and growing more strongly the safe haven status of the franc should become less important — yielding to an depreciation of the franc over time,” said Karsten Junius, chief economist at Bank J. Safra Sarasin AG in Zurich. “Therefore, we also do not consider the introduction of negative interest rates as important.”

Sluggish Exports

The SNB today cut its inflation forecast for the next two years, predicting price growth of 0.3 percent in 2015 and 0.9 percent in 2016.

Citing a slow recovery of exports, which have largely stagnated since 2011, the Swiss government earlier this week cut its growth forecast for the year to 2 percent from 2.2 percent. That matches the SNB’s own prediction for this year.

The Swiss economy might endure tightening in the supply of skilled labor if the government implements limits on immigration, which has proved a key support for growth in recent years. Voters in February backed a new quota system for workers from European Union countries, who presently can take up jobs freely.

The government is expected to present details on the new rules later this month, and until such information is public the economic effect of the new limits couldn’t be calculated, Jordan said.

Earlier today, the SNB said that imbalances in the Swiss real estate and mortgage markets could increase and called for additional regulatory measures.

–With assistance from Joel Rinneby in Stockholm and Carolyn Bandel, Jan-Henrik Förster, Jan Schwalbe, Paul Verschuur and Patrick Winters in Zurich.

To contact the reporter on this story: Catherine Bosley in Zurich at [e-mail] To contact the editors responsible for this story: Craig Stirling at [e-mail] Zoe Schneeweiss, Jana Randow