Monday , July 23 2018

Swiss Franc’s drop could let SNB relax

epa04561416 Pedestrians walk in front of The Swiss National Bank (SNB) in Bern, Switzerland, 15 January 2015. The Swiss National Bank (SNB) ended the day by abandoning its exchange rate control and cut interest rates to -0.75 to send the franc soaring against the single currency. The Swiss franc rose by almost 30 per cent against the euro in a move that shocked global markets.  EPA/PETER KLAUNZER


As the Swiss franc weakens, the nation’s central bank must decide whether it can afford to relax a little.
The currency’s 5 percent decline against the euro over the past three months is good news for the Swiss National Bank in its long-running bid to revive inflation. For President Thomas Jordan and fellow policy makers meeting this week, it could also mean there’s a question over whether the description “significantly overvalued” still applies.
Banks such as UBS Group AG and Vontobel Holding AG say Jordan may not be able just to gloss over the depreciation, driven by an abatement of risk aversion and a stronger euro-area economy. But any shift in language would have to be subtle—to avoid encouraging investors to buy the franc again—and wouldn’t be a signal that the SNB is about to abandon its policy of negative interest rates and currency market interventions.
“The SNB may state the obvious by mentioning that the recent depreciation of the franc has reduced the ‘significant overvaluation’,” said Credit Suisse economist Claude Maurer. “But in line with recent comments of board members, the SNB will most likely remain cautious and indicate that the franc situation remains ‘fragile,’ which would warrant sporadic foreign currency purchases.” The SNB sounding more relaxed about the currency would stand in contrast to the European Central Bank, where Mario Draghi last week said euro volatility was a source of uncertainty for the economy he oversees. While Draghi’s warning was mild, its appearance still indicated an increasing concern.
“Significantly overvalued” has been Jordan’s buzzword for the franc for the past two and a half years, but now the exchange-rate situation has changed. The SNB’s statement after its quarterly meeting Thursday will be the focus of investors because no change is expected to any of its policy tools.

About Admin

Check Also

EU bank-failure rules leave Austria’s Volksbanken with liquidity to burn

Bloomberg The European Union’s bank-failure rules are forcing Austria’s Volksbanken to open up the lending ...

Leave a Reply

Your email address will not be published. Required fields are marked *