Bloomberg News

SNB Says It Will Defend Franc Cap ‘With Utmost Determination’

September 24, 2011

Sept. 24 (Bloomberg) -- Switzerland’s central bank is determined to maintain the cap on the Swiss franc introduced earlier this month to help exporters, the bank’s president, Philipp Hildebrand said.

“We will defend the cap with the utmost determination,” Hildebrand said at a briefing on the sidelines of the annual meetings of the International Monetary Fund and World Bank in Washington today. “We have done what was necessary and our colleagues here recognized that we are in an exceptional situation that required exceptional measures.”

The Swiss National Bank on Sept. 6 introduced a cap of 1.20 francs versus the euro to fight deflation threats and help the country’s exporters. The franc has gained 17 percent against the single currency during the previous twelve months, threatening foreign sales, as investors sought a refuge from the euro area fiscal crisis.

Hildebrand declined to say whether the SNB would raise the ceiling on the franc. Today’s remarks are the first made in public by a SNB official after the central bank imposed the cap.

The Swiss currency’s strength may curb economic growth just as demand from abroad is weakening. The International Monetary Fund this week lowered its projections for next year’s economic expansion in Switzerland to 1.4 percent from 1.8 percent.

Franc, Euro

The Swiss currency reached a record of 1.0075 against the euro on Aug. 9 on investor concern that European governments may be unable to contain the region’s debt crisis. The franc has remained above 1.20 versus the single currency since the SNB imposed the cap, and was at 1.22 late yesterday.

Switzerland’s government as well as lawmakers have rallied behind the central bank after it drew criticism for its last round of currency interventions ended in June 2010. The purchases led to a record loss of $21 billion last year as the value of the central bank’s foreign currency holdings plummeted.

The IMF’s projections remain more optimistic than those of the Swiss government, which sees growth at 1.9 percent this year and 0.9 percent in 2012. That would be the weakest performance since the economy shrank in 2009. SNB lowered its 2011 growth forecast for the nation on Sept. 15.

Holcim, the world’s second-largest cement maker, said Aug. 18 that the currency’s strength shaved 916 million francs off sales in the second quarter and reduced operating profit by 203 million francs.

SNB policy makers unexpectedly cut borrowing costs last month and boosted liquidity to money markets to help weaken the franc. Hildebrand said on Sept. 6 that while costs of the currency ceiling may be “very high,” doing nothing “would almost certainly inflict tremendous long-term damage” to the economy.

The central bank last introduced a currency cap in 1978 to stem gains versus the Deutsche mark.

--Editor: Gail DeGeorge, Kevin Costelloe

To contact the reporters on this story: Mark Deen in Washington at markdeen@bloomberg.net; Klaus Wille in Zurich at kwille@bloomberg.net

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


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