Swiss central bank President Thomas Jordan said pressure on the franc ceiling has increased since recent renewed turmoil in the euro area, SonntagsZeitung reported, citing an interview.
“The situation over the past few weeks has worsened and has become a lot more uncertain,” Jordan told the Zurich-based newspaper in an interview published today. “At the same time, we are observing a considerable upward pressure on the franc. Investors are looking for a safe haven. For many, the franc is part of that.”
The euro region’s fiscal crisis deepened after Greece’s inconclusive elections on May 6 fueled concerns about a breakup of the 17-member area. The single currency dropped to the lowest in almost two years versus the dollar last week. The Swiss National Bank introduced a franc ceiling of 1.20 versus the euro in September to protect its economy after investors piled into the currency, pushing it to a record.
While the Swiss economy will avoid a recession, 2012 will be a “difficult” year, the newspaper cited Jordan as saying.
“I understand demands for an increase” in the franc ceiling, he also said, adding that the situation is “very difficult” for many companies, SZ reported.
“Still, we can’t manipulate our currency indiscriminately,” Jordan said, according to the newspaper. “That would be fatal and counter-productive in an even worse crisis situation. The minimum exchange rate needs to be legitimized. The current minimum exchange rate is realistic.”
The central bank may introduce capital control measures and precautions that would directly affect the inflow of money into Switzerland in addition to the franc ceiling of 1.20 if it comes to further shocks on the currency markets, Jordan told SonntagsZeitung.
The central banker declined to specify how this might be implemented and said the measures would be spelled out in the event they are needed, according to the interview. Swiss Finance Minister Eveline Widmer-Schlumpf said in December that a central bank-government task-force is examining options such as capital controls and negative interest rates to curb the franc’s strength.
Jordan, who took the helm of the SNB last month, said the central bank will continue to defend its minimum exchange rate “with the utmost determination even under the most difficult conditions,” the newspaper reported. Asked whether the SNB is purchasing euros to weaken the franc, Jordan told SonntagsZeitung “we never give details about our activities in the market.”
The SNB doesn’t expect Greece to leave the euro, according to the interview. Still, Jordan said “we’re bracing ourselves for very turbulent times,” SZ reported. The SNB plans to hold its next monetary assessment on June 14.
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