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Swiss National Bank fighting dual challenge
The Swiss National Bank is facing the dual challenge of a fast rising Swiss franc and an off-target three-month franc Libor at a time when the financial crisis is clearly hitting the economy, SNB Chairman Jean-Pierre Roth said in a newspaper interview published on Saturday.
- Reuters
- Published: 22:58 November 1, 2008
Zurich: The Swiss National Bank is facing the dual challenge of a fast rising Swiss franc and an off-target three-month franc Libor at a time when the financial crisis is clearly hitting the economy, SNB Chairman Jean-Pierre Roth said in a newspaper interview published on Saturday.
"We have two elements which are not pointing in the right direction - the nominal development in the franc and the three-month Libor rate, which is above our target," Roth said. "This is a big challenge for us."
Roth said the central bank's view of the economy had not changed for the better in recent weeks.
"We are more concerned than a month ago," Roth said. "The situation has noticeably worsened because the financial crisis is clearly affecting the real economy."
When asked whether the country was facing a recession next year, Roth said he wanted to wait until the central bank's economists had new forecasts ready before commenting.
Recession fears are mounting in Switzerland after a slew of weak economic data as key Swiss markets slow sharply and the soaring Swiss franc puts an extra drag on exports.
The franc has hit an all-time high against the euro last week, having risen around 10 per cent in just one month.
Roth said that the absolute level of the franc was not the problem but the speed of the rise a concern.
The SNB head noted that the three-month Libor - the SNB's target rate which is set by the market - was now moving in the direction of the targeted rate of 2.50 per cent.
"We see that the trust is increasing slowly and the rates have been falling in recent days," Roth said.
"It's not as fast as in the past but the direction is the right one."
The Libor was fixed at 2.72 per cent on Friday, off recent highs of 3.13 per cent, after the SNB launch-ed a number of new measures to ease strains on the money market, including cheap dollar funding and euro/franc swaps.
Markets are pricing in lower interest rates by December, the SNB's next regular quarterly meeting, after the SNB joined other central banks in cutting rates in early October.
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