keep franc cap, may never need to exit it at all
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[March 19, 2014]
By Alice Baghdjian
ZURICH (Reuters) — The Swiss National
Bank is not expected to lift its lid on the Swiss franc until at
least 2015, a Reuters poll showed on Tuesday, with some economists
suggesting the central bank may never need to officially exit the
currency cap at all.
The SNB imposed a ceiling on the Swiss franc at 1.20 per euro in
September 2011 to fend off deflation and a recession, after
investors fleeing the euro zone crisis bid the safe-haven currency
up to record levels in a matter of months.
All 20 economists who replied to a question about the cap said the
SNB would keep it through 2014. Eleven expect it to end sometime in
2015, but a further nine predicted it could last even longer.
Some questioned whether the SNB would even need to announce an
official exit from the cap at all, alluding to the central bank's
1978 cap on the franc against the German mark that was never
"There will be no official announcement, merely a lowering of the
frequency and tone of commitment to 'floor'," said Peter
Rosenstreich at Swissquote.
SNB Board Member Fritz Zurbruegg also suggested last month the bank
may not need to flag an exit. Zurbruegg said in the SNB's basic
scenario, safe-haven pressures on the franc arising from tension in
the euro zone would eventually disappear, causing the franc to
The bank is expected to reaffirm its commitment to the policy when
it announces its quarterly monetary policy decision at 0830 GMT on
A crisis in Ukraine has pushed the currency closer to its 1.20 per
euro limit in recent days, underscoring the safe-haven franc's
exposure to turmoil overseas. It was trading at 1.2151 on Tuesday.
All of the 37 economists polled also expect the central bank to keep
its target range for the Swiss franc LIBOR, its benchmark interest
rate, at 0 to 0.25 percent for now. They all expect it to remain
near zero through 2014, with a couple forecasting a first hike in
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The timing of an interest rate hike in Switzerland would depend on
the U.S. Federal Reserve and the European Central Bank, analysts
"Only when the (ECB) has started to raise its policy rate — in turn
partly influenced by the timing of the U.S. Fed lifting its key rate — will the SNB will have leeway to do so too," said Timo Klein at
IHS Global Insight.
Raising rates before the ECB could cause investors to flood into the
franc, putting pressure on the SNB's currency cap against the euro.
The central bank will also issue fresh growth and inflation
forecasts on Thursday. Economists expect it to confirm its December
forecast for growth of around 2.0 percent in 2014.
Price pressures are not forecast to approach the SNB's 2 percent
threshold any time soon. The bank is expected to confirm its
predictions for inflation of 0.2 percent in 2014 and 0.6 percent in
2015, and issue a forecast for 1.0 percent inflation in 2016.
(Polling by Ishaan Gera and Diptarka Roy;
writing by Alice Baghdjian;
editing by Alison Williams)
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