The Swiss central bank’s reference to the possible introduction of capital controls should be taken seriously, Bank Sarasin said.
“Given the mounting pressure,” the announcement is clearly intended as a warning shot to ‘speculators’,’’ Sarasin economists said in an e-mailed research note published today. Still, “such measures would only be considered in a worst case as the costs would be high.”
Pressure on the SNB to resort to unorthodox measures to defend its limit of 1.20 francs per euro could be mounting as the escalating euro-area debt crisis prompts investors to seek the Swiss currency as a safe haven. SNB President Thomas Jordan on May 28 said in an interview controls on capital inflows are among ways being considered by a government-led panel to stop the franc from strengthening if the debt crisis worsens.
Negative interest rates would be the most probable means of capital controls, Sarasin added. To discourage speculators, they needed to be higher than the expected appreciation of the franc.
“If we assume in a worst case scenario that the SNB is not able to defend the floor with its interventions” the Swiss franc’s appreciation versus the euro could match the 15 to 20 percent quarterly gains seen last year,’’ Sarasin said. “In that case, negative interest rates would need to be at a similar level to ward off capital inflows.”
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