Swiss Na­tional Bank could lower rates more

The Pak Banker - - COMPANIES/BOSS -

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.

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