Swiss National Bank could lower rates more
The Swiss National Bank could push interest rates deeper into negative territory, Chairman Thomas Jordan said in an interview, warning that turmoil in Europe could revive the franc's traditional role as a safe-haven currency.
Asked whether the SNB could lower rates further, Jordan told Swiss magazine Bilanz: "We have gone relatively far with the negative interest rates. At present we are monitoring the situation closely. We do not rule out anything."
Just over a year ago, Switzerland's central bank shocked financial markets by abandoning a cap of 1.20 francs per euro it had defended for three years to shield the export-oriented economy from the pain of an overvalued currency. In December 2014 the SNB introduced negative interest rates in an effort to make the safe-haven franc less attractive. It now charges 0.75 percent for some bank deposits at the SNB and also aims to keep three-month LIBOR rates around - 0.75 percent.
The SNB's policy aims to weaken the franc, Jordan said in the interview published on Thursday. "For this purpose, we have negative interest rates and we are ready to intervene in the forex market." The euro plunged against the franc when the cap was removed but has recovered this year to over 1.11 francs. It gained on Jordan's comments to trade around 1.0970 at midday. Jordan said the franc remained overval- ued but would likely weaken over time. "The overvaluation is less important than it was a year ago," he said. Jordan reiterated that the SNB had no fixed target for the euro-franc rate and again ruled out tying the franc to a currency basket or reintroducing a cap.
Jordan said negative rates had helped blunt an outflow of funds from emerging markets because the currencies of other advanced economies were more attractive. "But big disruptions in Europe could quickly put the franc back in the foreground," he added. In a note released before Jordan's comments, UniCredit analyst Vasileios Gkionakis said the link between the franc and risk had been broken, noting negative interest rates had fuelled a sharp acceleration of debt outflows from Swiss investors.
The strong franc had also fed concerns about corporate profitability, triggering an exodus of equity flows as well. "Free from the barrier of the 'safe haven curse', with outflows set to continue and plenty of overvaluation to correct, the Swiss franc's cycle of weakness has ample room to run further," he added.
In the interview, Jordan said Swiss inflation was negative and lower than the SNB would like. "Our monetary policy that is very expansive is aiming to push it back into positive territory in the medium term," he said. Swiss consumer prices fell 1.3 percent from a year ago in January, data showed on Thursday.