Swiss National Bank’s Franc Cap Still Essential, Danthine Says

By Catherine Bosley 

The Swiss National Bank (SNBN)’s currency cap remains necessary and it won’t exclude taking further steps should the crisis in the euro area intensify, Vice President Jean-Pierre Danthine said.

“We find ourselves in a situation in which the franc is still highly valued and we can’t allow a tightening of monetary conditions,” Danthine said in an interview with the Lucerne- based Zentralschweiz am Sonntag. “It is rather a question whether to be a bit more expansive.”

The franc, which investors buy at times of heightened uncertainty, nearly touched parity with the euro in August of 2011, threatening to plunge Switzerland into a recession and prompting the SNB to set a cap of 1.20 per euro on the currency a month later.

The state of affairs in the euro area remains precarious and the franc could face further appreciation pressure, Danthine said. “As the economic situation improves only very slowly, especially in the euro area, a change of course in monetary policy in the short term is highly unlikely,” he said.

Further Steps

The Zurich-based SNB, led by President Thomas Jordan, has repeatedly said it would take additional steps if needed. The International Monetary Fund gave a green light on supplementary measures, saying in March the Swiss central bank should charge lenders on excess reserves if the franc were to rise again.

The SNB is continually analyzing events and could take action if required, Danthine said. “We have always said that we exclude nothing,” he said.

The liquidity generated by the SNB’s currency interventions to defend the ceiling would have to be withdrawn in the medium and long term, though there is “absolutely no risk” of inflation now, he said.

“The technical means to withdraw liquidity at the right moment are available,” he said. “Knowing when the time is right is and will remain the great art of monetary policy.”

Slow Growth

Danthine reaffirmed the central bank’s forecast for the Swiss economy to grow between 1 percent and 1.5 percent this year. “The slight improvement in the second half is expected to continue in 2014,” he said.

Danthine also said there were no clear signs of a slowdown in the real estate market. The prices of apartments and single- family homes have risen sharply in recent years, as the SNB’s policy makes mortgages cheap.

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net

source

please give me comments thanks