AFP, Geneva :
Switzerland’s central bank Saturday defended its shock decision to let the franc soar, insisting that the subsequent turbulence rocking global markets and the Swiss economy since the move would eventually subside.
“This was not an easy decision… (but) we are convinced it is the right one,” Swiss central bank chief Thomas Jordan said in an interview published in Swiss dailies Le Temps and NZZ on Saturday. The head of the Swiss National Bank (SNB) has faced widespread criticism both at home and abroad after the bank’s bombshell announcement Thursday that it was abandoning the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.
The Swiss franc has since gained around 20 percent against other currencies and is now trading at near parity with the euro.
“The franc is significantly overvalued compared to the dollar and the euro,” Jordan acknowledged, noting that the bank had introduced negative interest rates that, in time, would help drive the value of the overheated currency back down.
He hinted that the bank might consider future “interventions” if the situation did not stabilise. In the meantime, the soaring franc has caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand, and was seen as a significant threat to Switzerland’s export-dependant economy.
The Swiss stock exchange’s main SMI index has plunged more than 14 percent since Thursday’s announcement.
The decision is also expected to deliver a severe blow to the Swiss economy, with banking giant UBS slashing its growth forecast for this year to just 0.5 percent from its previous estimate of 1.8 percent.
The yield on Swiss 10-year bonds has meanwhile entered negative territory for the first time, with the result that lenders will now have to pay to lend money to the country. “The strong franc is threatening the entire Swiss system,” the Tribune de Geneve daily said Saturday, adding: “The future looks dark.”
Switzerland’s central bank Saturday defended its shock decision to let the franc soar, insisting that the subsequent turbulence rocking global markets and the Swiss economy since the move would eventually subside.
“This was not an easy decision… (but) we are convinced it is the right one,” Swiss central bank chief Thomas Jordan said in an interview published in Swiss dailies Le Temps and NZZ on Saturday. The head of the Swiss National Bank (SNB) has faced widespread criticism both at home and abroad after the bank’s bombshell announcement Thursday that it was abandoning the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.
The Swiss franc has since gained around 20 percent against other currencies and is now trading at near parity with the euro.
“The franc is significantly overvalued compared to the dollar and the euro,” Jordan acknowledged, noting that the bank had introduced negative interest rates that, in time, would help drive the value of the overheated currency back down.
He hinted that the bank might consider future “interventions” if the situation did not stabilise. In the meantime, the soaring franc has caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand, and was seen as a significant threat to Switzerland’s export-dependant economy.
The Swiss stock exchange’s main SMI index has plunged more than 14 percent since Thursday’s announcement.
The decision is also expected to deliver a severe blow to the Swiss economy, with banking giant UBS slashing its growth forecast for this year to just 0.5 percent from its previous estimate of 1.8 percent.
The yield on Swiss 10-year bonds has meanwhile entered negative territory for the first time, with the result that lenders will now have to pay to lend money to the country. “The strong franc is threatening the entire Swiss system,” the Tribune de Geneve daily said Saturday, adding: “The future looks dark.”
