Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Swiss central bank ditches mantra on franc overvaluation

Published 09/14/2017, 06:55 AM
Updated 09/14/2017, 07:00 AM
© Reuters. A waitress presents a plate with various Swiss Franc coins and notes in this picture illustration in a restaurant in Zurich

© Reuters. A waitress presents a plate with various Swiss Franc coins and notes in this picture illustration in a restaurant in Zurich

By John Revill

ZURICH (Reuters) - Switzerland's central bank tempered its view of the Swiss franc's overvaluation on Thursday although analysts said the language shift should not be seen as heralding a departure from its ultra-loose monetary policy.

The Swiss National Bank retained its negative interest rates and said it remained ready to intervene in the currency markets to rein in the franc, whose soaring valuation it has long fought to restrain.

But in its quarterly policy assessment, the SNB ditched its nearly three-year mantra that the franc was "significantly overvalued", as foreseen by an Reuters poll before the interest rates decision.

Instead the central bank acknowledged the franc's weakening against the euro (EURCHF=) in recent weeks, which it said "is helping to reduce, to some extent, the significant overvaluation of the currency".

"The Swiss franc nevertheless remains highly valued, and the situation on the foreign exchange market is still fragile," the SNB said in a statement.

The franc weakened on the news, with the euro gaining 0.4 percent to trade at 1.1504 (EURCHF=), still below the 1.20 floor the SNB defended until January 2015.

SNB Chairman Thomas Jordan said the central bank had not considered changing its policy, citing low inflation in Switzerland and a small interest rate differential to other countries.

"We see absolutely no reason for us to change our monetary policy at present," Jordan told Swiss broadcaster SRF.

Analysts said the language tweak should not be seen as a shift by the SNB, which has built up foreign currency reserves 10 percent bigger than Switzerland's total economic output during its campaign to weaken the franc.

Instead the change was recognition of the euro's nearly 5 percent rise against the franc since early July as Europe's economic recovery gathers momentum and political risks ease.

That has helped Swiss exporters, whose biggest foreign market is the neighboring euro zone.

SUBTLE CHANGE

"The change in the SNB's language was even more subtle than I thought it would be," said Karsten Junius, an analyst at J.Safra Sarasin. "But they will trigger no change in actual SNB policy."

Analysts from Credit Suisse (SIX:CSGN), UBS and Zuercher Kantonalbank also expected no imminent change to SNB policy.

On Thursday, it kept its target range for the three-month London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent and negative rates on sight deposits at -0.75 percent, as expected in a Reuters poll of analysts.

The SNB trimmed its GDP forecasts, although the weaker currency let it raise its inflation outlook.

The central bank is likely to remain cautious pending a consolidation of the franc's weakness.

The European Central Bank will also have to start reducing its own expansive policy before the SNB changes tack, said UBS analyst Alessandro Bee.

"When the ECB gets toward the end of reducing its asset purchase program that would probably lead to higher interest rates in the euro zone and allow the SNB to lift its own interest rates," Bee said.

© Reuters. A waitress presents a plate with various Swiss Franc coins and notes in this picture illustration in a restaurant in Zurich

The SNB would also want to see evidence that economic damage caused by the franc's surge over the last three years has been repaired. "The data here has so far been mixed," said Bee.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.