Swiss National Bank Chairman Thomas Jordan said that while he welcomes the franc’s recent weakening, the Swiss currency remains “overvalued.”
The SNB’s policy “is the right one at the moment and we will continue to defend this minimum exchange rate with the utmost determination,” Jordan told reporters in Tokyo today after attending a meeting of global officials. “The franc continues to be a very strong currency and in that sense an overvalued currency. It’s right for the central bank to continue this monetary policy for the foreseeable future.”
The Swiss National Bank has amassed foreign-currency reserves worth 429.3 billion francs ($460 billion), with policy makers on Sept. 13 reiterating their pledge to defend the franc ceiling of 1.20 versus the euro. Pressure on the cap eased over the past two months after the European Central Bank announced plans to buy bonds of distressed nations in tandem with the euro area’s rescue fund to overcome the sovereign debt crisis.
“Decisions taken in Europe helped markets calm down,” Jordan said. “Financial market sentiment has improved and reduced pressure on the franc.”
The Zurich-based central bank introduced the ceiling in September 2011 after the Swiss currency surged to near-parity with the euro, eroding exporters’ competitiveness and threatening to spark deflation. The franc weakened 0.7 percent versus the euro over the past two months.
Still, the economy may struggle to regain strength after shrinking 0.1 percent in the second quarter. The SNB last month lowered its 2012 growth projection to 1 percent from a June forecast of about 1.5 percent, saying downside risks remain high “in the near term” and that it’s ready to take further measures if needed to counter a renewed surge in the franc.
Expansive monetary policies of central banks around the world are currently the exclusive driver of the global economy, Jordan said.
“In the course of the past 12 months, the global economic outlook clouded,” he said. “The development of the global economy must be assessed as being subject to uncertainty and prone to set-backs.”
Swiss Finance Minister Eveline Widmer-Schlumpf today said the euro area “remains the epicenter of risks and uncertainty and much more remains to be done to restore market confidence and reverse capital flight from the periphery.”
Jordan told reporters that “it would be helpful if there were clarity” about the conditionality of the ECB’s new bond- purchase program and new governance structures in Europe.
The SNB will hold its next quarterly monetary assessment in December. It held borrowing costs at zero last month.
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