Bloomberg News

Swiss History Suggests Franc Defense May Work: Chart of the Day

September 06, 2011

Sept. 6 (Bloomberg) -- The Swiss central bank should be able to defend its ceiling on the franc’s exchange rate if the currency target it imposed in 1978 is any guide, said Geoffrey Yu, a foreign-exchange strategist at UBS AG.

The CHART OF THE DAY shows the Swiss National Bank succeeded in keeping the franc below 80 francs per 100 Deutsche marks in the two decades through 1998, before Germany adopted the euro. During that period, Swiss inflation exceeded the SNB’s 2 percent limit in 12 years.

The franc surged to a record against the euro last month, as European governments struggled to contain the region’s debt crisis. With the strengthening currency hurting exports and clouding growth prospects, SNB policy makers today set a franc ceiling of 1.20 versus the euro and said they’re ready to “enforce this minimum rate with the utmost determination.”

If the 1978 experience “is anything to go by, the SNB should be successful in defending this level,” Yu said in an e- mailed note from London today. “If in a few quarters’ time, the euro-franc has managed to retain stability or even some gains, without Swiss inflation going through the roof, the SNB will be able to look back and reflect on a job well done.”

--With assistance from Klaus Wille in Zurich. Editors: Simone Meier, Mark Gilbert

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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