Zurich: Swiss interest rates will stay negative “for some time” given many risks — including China — that could spark safe-haven buying of what is already a “clearly overvalued” Swiss franc, Swiss National Bank Chairman (SNB) Thomas Jordan said.
Defusing the Greek debt crisis eased some upward pressure on the franc, Jordan told the NZZ am Sonntag paper in an interview, but he stressed the central bank’s commitment to negative rates and readiness to intervene if needed on currency markets.
The SNB in January removed its cap on the franc at 1.20 (Dh4) to the euro, sending the currency soaring and putting a major strain on the export-dependent Swiss economy.
Swiss rates will have to stay negative to make the franc unattractive, he said, noting rates will remain low in other major currency areas as well.
“But there are lights at the end of the tunnel. It is said that the US central bank may under some circumstances start normalising monetary policy, and then possibly England could raise interest rates a bit.
“There are signs that the economy is recovering in the euro area. Then monetary policy could normalise there. That would let us get away from negative rates,” he said.
Asked why the franc had eased of late to around 1.08 to the euro from 1.04, he said: “The Swiss franc is clearly overvalued, at the same time we have negative interest rates. This makes it less attractive to hold francs. The uncertainty in Europe is slightly lower because the crisis has been defused by Greece.
All this suggests a further weakening of the Swiss franc.”
However, he added: “Of course, there are still many risks in the world, which may cause the franc to again take on the role of safe haven. In addition, come the uncertain developments in the emerging markets, especially in China.” Jordan made a rare public acknowledgement in June that the SNB had stepped into the market. Asked by the paper if it had intervened over the past two months, he said: “We have always stressed that we will be active in the currency market if necessary. In the second half of June, when the Greek [bailout] negotiations were at a critical stage, we intervened, for example, stabilising the foreign exchange market.”
Data last week showed the Swiss economy generated surprise growth in the second quarter, averting what would have been its first recession since 2009.
Jordan said the economy had developed more or less in line with the SNB’s expectations since January. It will update its growth and inflation forecasts at its rate meeting on September 17.
It has said before it expects the economy to grow nearly 1 per cent this year, with inflation staying negative until 2017.
Jordan said it was “not optimal” that prices were falling, but noted the strong franc made import prices lower at a time oil prices had halved. “Our forecasts assume that inflation in 2017 returns to positive territory.”
Jordan acknowledged that many companies were struggling to master the fallout from the strong franc, but added the ensuing structural change would be positive for Switzerland.
He dismissed talk the SNB would have been better off using a basket of currencies rather than capping the franc against the euro alone. As to its willingness to intervene, he said: “We consider not a single currency, but exchange rates overall.”