Bloomberg News

SNB Remains Ready to Act on Franc If Needed, Danthine Says

November 05, 2011

(Updates with franc trading in sixth paragraph.)

Nov. 4 (Bloomberg) -- Swiss central bank Governing Board member Jean-Pierre Danthine said policy makers remain ready to act if the economy deteriorates or deflation threats emerge.

“Even at a rate of 1.20 francs per euro, the franc remains high,” Danthine said at an event in Geneva late yesterday. “It should continue to weaken over time. If the economic outlook and deflationary risks so require, further measures will be taken,” he said without elaborating.

The Swiss central bank on Sept. 6 imposed a cap of 1.20 francs versus the euro after the currency surged to a record, threatening exports and increasing deflation risks. With the economy showing signs of a deepening slowdown and companies struggling to protect earnings, some labor unions and business groups have called on policy makers to raise the ceiling.

Geberit AG, Europe’s largest maker of toilet flushing systems, said yesterday full-year earnings before interest, tax, depreciation and amortization may decline partly because of the franc’s strength. Sonova Holding AG, a Swiss hearing-aids maker, said last month that the currency’s ascent cut first-half sales by 17 percent.

The Swiss Labor Union Federation, representing some 380,000 workers, said on Oct. 18 the SNB should raise the ceiling to at least 1.40 versus the euro. Swissmem, Switzerland’s largest lobby group for manufacturers, has also called for a higher cap.

‘Major Step’

The franc reached an all-time high of 1.0075 versus the euro on Aug. 9, trading near parity. Since the introduction of the cap, it has remained between 1.20 and 1.25. The Swiss currency traded at 1.2211 versus the euro at 12:32 p.m. in Zurich, down 0.6 percent on the day.

Danthine said the currency’s “massive overvaluation” earlier this year forced policy makers to make what he called the “extraordinary” if “necessary” decision of setting a ceiling.

It “was not taken lightly,” he said. “It was a major step and has naturally elicited a wide variety of reactions.”

The SNB’s past efforts to stem the franc’s advance through currency purchases in the 15 months through mid-June 2010 contributed to the central bank’s record $21 billion loss in 2010, prompting calls by lawmakers for President Philipp Hildebrand to resign. The SNB more than quadrupled its currency holdings over that period before suspending interventions.

Holdings of foreign currencies dropped to 242.7 billion francs ($275 billion) at the end of October from 282.2 billion francs in the previous month, the SNB said today.

Franc Haven

The franc’s gains are not only caused by the relative strength of the Swiss economy, but also by the currency’s perceived status as a haven, Danthine said.

It’s an “essentially financial phenomenon which may inflict significant and potentially permanent damage upon the real economy,” he said. “When financial forces push a currency so far away from its fundamental value so quickly, the consequences are very real. After all, most businesses do not work with margins that can absorb such extreme exchange-rate fluctuations, in terms of both speed and level.”

The Swiss central bank will hold its next monetary policy assessment on Dec. 15. At its September meeting, it forecast economic growth to come to a halt in the current half, with consumer prices seen declining 0.3 percent in 2012.

--Editors: Simone Meier, Jennifer M. Freedman

To contact the reporter on this story: Klaus Wille in Geneva at

To contact the editor responsible for this story: Craig Stirling at

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