Bloomberg News

Jordan Says SNB Is Ready to Act as Franc Poses Risks

April 27, 2012

Swiss Central Bank President Thomas Jordan. Photographer: Valentin Flauraud/Bloomberg

Swiss Central Bank President Thomas Jordan. Photographer: Valentin Flauraud/Bloomberg

Swiss central bank President Thomas Jordan said policy makers are ready to take further measures if needed to weaken the franc as its strength poses “major challenges” to the economy.

“We are acutely aware that considerable challenges still remain for the Swiss economy, despite the minimum exchange rate,” Jordan, who was appointed president on April 18, told the Swiss National Bank’s shareholders in Bern today. Speaking after the KOF Swiss Economic Institute reported a third straight gain in its leading indicator in April, he also said that there are “growing signs” the situation has stabilized.

The SNB has said that it’s ready to defend the currency ceiling of 1.20 per euro as Europe’s fiscal crisis clouds the region’s growth prospects, making Switzerland’s strengthening economy more attractive for investors. Jordan, 49, said while the cap has helped reduce the “very substantial overvaluation,” the currency remains overvalued.

The franc, which is considered a haven in times of global turmoil, was little changed against the euro after Jordan’s comments, trading at 1.2015 at 11:37 a.m. in Zurich.

Jordan said the debt turmoil in the euro area “still presents the biggest risk,” with the “potential to seriously affect the international financial system as well as international economic development.”

Spain Rating Cut

Spanish bond yields rose above 6 percent this month for the first time since early December, reflecting investors’ concerns that the country may need external aid. Standard & Poor’s yesterday cut its rating of Spain to BBB+ from A, and unemployment, already the highest in the European Union, rose to 24.4 percent in the first quarter, a report showed today.

With governments from Portugal to Italy cutting spending to plug their budget gaps and restore investor confidence, the region’s slump shows signs of deepening. In Germany, Europe’s largest economy, consumer confidence will decline for a second month in May, a GfK SE (GFK) report showed today. French consumer spending dropped more than economists forecast in March, Paris- based national statistics office Insee said.

In the U.K., consumer confidence was unchanged this month and is unlikely to improve after data this week showed the economy slid into its first double-dip recession since 1975, GfK NOP Ltd. said today.

SNB Defense

By contrast, Switzerland’s economy is regaining some strength. Swiss manufacturing output expanded in March for the first time in seven months and the unadjusted jobless rate declined to the lowest since November. The KOF leading indicator, which helps predict economic developments in about six months, rose to the highest since October.

“Financial markets are constantly changing their assessment of risks,” Jordan said. “A situation may also occur in which the market decides to test the defense of the minimum exchange rate. Consequently, the SNB is present in the foreign exchange market at all times.”

Referring to the franc briefly breaching the currency ceiling on April 5 for the first time since the measure was introduced in September, Jordan said it was “only for a few seconds and resulted from market idiosyncrasies.”

In Japan, the exchange rate is also threatening the economy. Industrial production rose less than forecast in March, a government report showed today, and the Bank of Japan expanded its plan for government-bond purchases.

‘Limiting the Damage’

In the U.S., the biggest increase in consumer spending in a year probably helped extend the country’s economic expansion into the first quarter, economists said before a report today.

While the Swiss currency surged as much as 37 percent against the euro in the 12 months before the ceiling was introduced on Sept. 6, it has since averaged 1.2161, helping bolster exports and revive economic growth.

The franc ceiling “proved to be effective,” Jordan said. It “has given business leaders a better basis for planning, thereby clearly limiting the damage inflicted by the appreciation of the franc on the real economy.”

The SNB said at its quarterly assessment last month that it expects the economy to expand about 1 percent this year. Consumer prices may decline 0.6 percent before inflation returns in 2013 with a rate of 0.3 percent, accelerating to 0.6 percent in 2014, it estimated.

Jordan said that there’s no inflation risk “in the foreseeable future” and the “threat of a deflationary trend has been kept in check.” Interest rates in Switzerland “are likely to remain low for a while,” he said.

“This modest economic momentum is likely to be reflected in a moderate increase in unemployment over the course of the next few quarters,” he said. “The expected economic activity is lower than would be the case for normal capacity utilization. This means there will be no inflationary pressure from this source.”

To contact the reporter on this story: Simone Meier in Zurich at

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

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