Sun, Jan 18, 2015 page13

• SNB head defends removal of euro cap

  SWISS NEUTRALITY: Chairman Thomas Jordan said that the Swiss National Bank is an independent central bank exercising its prerogative to make decisions on its own

  • AFP, GENEVA
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  Switzerland’s central bank chief on Friday defended the institution’s shock decision to scrap efforts to stop the overheated Swiss franc from rising, insisting the turbulence rocking markets and the Swiss economy should settle.

  “You must remember that the currency cap from the beginning was supposed to be an exceptional and temporary measure,” Swiss National Bank (SNB) Chairman Thomas Jordan said in an interview published in yesterday’s editions of Swiss dailies Le Temps and NZZ.

  “It was always meant to be abandoned,” he said, stressing that the bank’s massive efforts to hold down the currency were no longer warranted.

  

  Swiss National Bank Chairman Thomas Jordan speaks during a media conference in Zurich on Thursday. The euro dropped to its lowest level since November 2003 on Thursday, after the Swiss central bank announced that it would give up its minimum exchange rate of 1.20 Swiss francs per euro. Switzerland had been buying euros to prevent the franc from becoming too strong and hurting its export industry.

  Photo: EPA

  “If the [economic] objective is no longer justified or sustainable, we should stop the exercise. We reached that point,” he said.

  The bank, he said, had determined that if it had continued its policy “it risked losing control of its monetary policy in the long term.”

  Jordan’s comments came a day after the SNB stunned markets with its decision to abandon the minimum rate of 1.20 Swiss francs against the euro that it had been defending for more than three years. The Swiss currency immediately gained nearly 30 percent against the euro, before stabilizing at about parity — which is still 15 percent higher than Wednesday’s rate.

  The rate was introduced as the eurozone crisis sent investors scurrying to the safe haven currency. More recently, the Russian ruble crisis put renewed pressure on the franc.

  As late as Monday last week, SNB Vice Chairman Jean-Pierre Danthine insisted in a media interview that the bank would continue defending the policy.

  The soaring franc caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand and was seen as a significant threat to Switzerland’s export-dependent economy.

  The Swiss stock exchange’s main SMI has plunged more than 14 percent since Thursday morning.

  “We were aware that this decision could have a major impact on markets,” Jordan said.

  “The markets should gradually stabilize,” he said, admitting that “it could take time.”

  When asked if the SNB might reintroduce a cap on the franc if the markets did not settle, Jordan said that if there was a clear need, the bank “would be active on the exchange markets.”

  Jordan said the bank directors had unanimously agreed to scrap the cap, insisting the Swiss economy was in a much better place than it had been when the cap was introduced in 2011.

  “We gave the Swiss economy time to adapt to the new situation. A period of three years is not negligible,” he said.

  Now that the cap is gone, Jordan acknowledged that “following this decision, the economic situation in Switzerland is more difficult” and that many Swiss companies would now face “challenges.”

  He said that the “SNB cannot fulfil all wishes with its monetary policy. It is not all-powerful.”

  Jordan said he understood the barrage of criticism facing the bank after Thursday’s move, but that he was sure the bank had made the right decision.

  He brushed aside a comment from IMF managing director Christine Lagarde questioning why she had not been warned before the bombshell announcement fell.

  “SNB is an independent central bank. It is our prerogative to prepare our decisions on our own,” Jordan said.
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