Bloomberg News

SNB’s Jordan Says Franc Limit Is Right Policy to Avoid Recession

July 03, 2012

Swiss central bank President Thomas Jordan said keeping the limit of 1.20 francs per euro is the right policy to maintain price stability and prevent a recession.

“At the moment the minimum exchange rate is the right response for Switzerland to the crisis,” Jordan told German newspaper Handelsblatt in an interview. “Otherwise we couldn’t fulfill our mandate of maintaining price stability while taking due account of economic developments. We would have negative inflation rates for a longer period as well as a recession.”

Walter Meier, a Zurich-based spokesman for the SNB, confirmed the remarks.

The central bank’s foreign-currency reserves jumped about 20 percent in the five months through May as policy makers stepped up their defense of the ceiling of 1.20 francs per euro introduced in September to fight deflation and help exporters. Investors are piling into the Swiss currency, seen as a haven in times of turmoil, as euro-area leaders are struggling to contain the region’s debt crisis.

“We are ready to enforce the minimum exchange rate with unlimited purchases of foreign currencies, if needed,” Jordan told the newspaper, adding that SNB models suggest the franc is a “very highly valued currency” at 1.20 against the euro. “The fair value is clearly above the minimum exchange rate.”

Inflation Risk

Foreign currency reserves increased to 306.1 billion francs ($320.9 billion) in May from 247.2 billion francs the previous month, the central bank said on June 29.

Through its purchases of euros, the central bank increases the amount of francs available to Switzerland’s lenders, raising the risk of inflation in the medium and long term.

There is currently no risk of a “burst of inflation” in Switzerland or elsewhere, Jordan said.

“In Switzerland we even have problems to the contrary,” he said. “But in the U.S. and Europe, there is price stability by and large. It seems that expansionary monetary policy doesn’t trigger a jump in demand. On top of that, central banks know they’ll have to skim off excess liquidity once the economy recovers.”

The Swiss franc was little changed after Jordan’s comments were published and traded at 1.20119 at 6:41 p.m. in Zurich. The currency was almost unchanged from Friday’s close. The franc traded at 95.40 centimes against the dollar.

Jordan said the SNB “basically” doesn’t exclude any measure to fight the franc’s strength. Capital controls would be considered “in the worst case,” he said, while declining to elaborate on that. Jordan said that he doesn’t expect Greece to exit the euro area or a collapse of the currency union.

Swiss Finance Minister Eveline Widmer-Schlumpf said in December that a task force is examining options such as capital controls and negative interest rates to curb the franc’s strength if needed. Jordan is part of that panel.

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

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

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