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Swiss central bank ditches mantra on franc overvaluation

Reuters  |  ZURICH 

By John Revill

ZURICH (Reuters) - Switzerland's central tempered its view of the 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 National retained its negative interest 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 ditched its nearly three-year mantra that the franc was "significantly overvalued", as foreseen by an poll before the interest decision.

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

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

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

Chairman Thomas Jordan said the central had not considered changing its policy, citing low inflation in 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 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 exporters, whose biggest foreign market is the neighbouring euro zone.


"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 policy."

Analysts from Credit Suisse, UBS and Zuercher Kantonalbank also expected no imminent change to 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 on sight deposits at -0.75 percent, as expected in a poll of analysts.

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

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

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

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

The 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.

(Reporting by John Revill; Editing by Michael Shields and Catherine Evans)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, September 14 2017. 16:26 IST