Swiss Government, SNB in ‘Intense’ Talks, SonntagsZeitung Says
August 15, 2011, 4:20 AM EDTBy Simone Meier and Matthias Wabl
Aug. 15 (Bloomberg) -- The Swiss government and the central bank are in “intense” talks about a possible franc target to stem currency gains, SonntagsZeitung newspaper reported, citing unidentified people close to the situation.
The plans are “ready” and the Swiss National Bank may set such a target in “coming days,” the newspaper reported yesterday. The discussions are focused on the government’s role and an “appropriate plan” may be adopted on Aug. 17, it said. Walter Meier, a spokesman for the SNB, declined to comment.
SNB policy makers, led by Philipp Hildebrand, have been seeking ways to deter investors from piling into the franc and stop the currency’s ascent to near parity with the euro. While the central bank boosted liquidity in money markets and cut borrowing costs to zero, lawmakers from the People’s Party to the Christian Democrats have signaled their support for tougher measures to protect the economy and avert job losses.
“The SNB is ‘leaning against the hurricane’ in a major way,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange Ltd. in London, said in an e-mailed note today. While the central bank is probably “still looking for a better entry point to initiate a new round” of currency purchases, it “will have a very difficult time limiting the extent of the franc strength.”
The franc traded at 1.1404 versus the euro at 9:45 a.m. in Zurich, down 2.9 percent from Aug. 12. It reached a record of 1.0075 on Aug. 9. Against the dollar, the currency was at 79.74 centimes, down 2.5 percent.
October Vote
Lawmakers, facing elections in October, have become increasingly concerned that the franc’s strength will erode exports and hinder growth. Consumers became more pessimistic about the economic outlook and job prospects in July and investor confidence slumped. The government held an extraordinary meeting on the franc on Aug. 8 and forecast growth to weaken over the coming months.
Goldman Sachs Group Inc. said in an e-mailed note on Aug. 5 that cut its Swiss economic-growth forecasts for this year and next to 1.9 percent from 2.1 percent and to 0.6 percent from 2 percent, respectively.
Christophe Darbellay, head of the Christian Democrats, said in a telephone interview on Aug. 12 that the party supports the SNB and called for “extraordinary measures.” People’s Party Vice President Christoph Blocher, who previously objected to currency purchases, said policy makers need to use all tools to fight a “war.”
Secret Meeting
While the SNB is formally independent, the government may comment on a target to make such a step “as efficient as possible,” the newspaper said. The SNB may introduce an initial lower limit of slightly above 1.10 versus the euro before gradually increasing it, SonntagsZeitung reported, citing insiders.
Swiss Economy Minister Johann Schneider-Ammann led a secret meeting in Bern on Aug. 2 with leaders including Swatch Group AG Chief Executive Officer Nick Hayek and Credit Suisse Group AG Chairman Urs Rohner to discuss the franc, Neue Zuercher Zeitung am Sonntag reported yesterday, without saying where it got the information. The participants all agreed to support the SNB weakening the currency, it said.
Andre Simonazzi, a government spokesman, confirmed that the franc will be on the agenda when the Cabinet meets on Aug. 17 in Bern. The government is in close contact with the SNB and Hildebrand also attended the extraordinary session last week, he said. He wouldn’t comment on possible measures.
‘Several Hundred Billions’
SNB policy makers have been reluctant to start purchasing foreign currencies to weaken the franc after intervention attempts in the 15 months through mid-June 2010 sparked a record loss of $21 billion last year.
Lukas Gaehwiler, head of UBS AG’s Swiss operations, told SonntagsZeitung in an interview that the SNB has “better chances of success” with interventions, given the current exchange rate. Policy makers would have to be ready to spend “several hundred billions of francs or more,” he said.
“The SNB is wary of currency interventions given that they were not very successful the last time,” said Ursina Kubli, an economist at Bank Sarasin in Zurich. Still, “with the franc moving closer to parity, a lot of measures are becoming more realistic.”
--Editors: John Viljoen, Colin Keatinge
To contact the reporters on this story: Simone Meier in Zurich at smeier@bloomberg.net; Matthias Wabl in Zurich at mwabl@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
