The euro spiked briefly against the Swiss Franc after the Swiss National Bank announced it will maintain the 1.20 CHF floor to prevent the franc from strengthening too much. The SNB remains prepared to buy unlimited quantities of foreign exchange for this purpose and to be prepared for any downside risks that should arise in the euro zone, especially after the Greek elections on Sunday.
SNB Chairman, Thomas Jordan said in a press conference:
“The implementation of the cap has absolute priority. We are prepared to buy unlimited quantities. For this reason there is no upper limit.”
“The cap is absolutely necessary to support price stability and to protect the Swiss economy, therefore we will enforce this cap.”
“Of course we are continuously looking at all possible other measures. It is to be understood in the sense of an emergency plan, if there is a corresponding escalation of the crisis, which would require it.”
“Furthermore it is a necessity that the responsible authorities consider what measures under certain circumstance could be implemented if there is an escalation of the situation. Therefore we are looking together with the federal government at various measures. I don’t want to go into detail of those measures.”
The central bank wants s to protect the stability in the Swiss economy amid slowing global activity and an unstable Europe. It believes that even at the currency rate the Swiss franc is too high, and any further appreciation will have a serious impact on price stability in Switzerland and result in higher inflation.
For 2012, the forecast shows an inflation rate of -0.5 percent . For 2013, the SNB is expecting inflation of 0.3 percent and for 2014, of 0.6 percent. The bank’s conditional inflation forecast is unchanged from its March forecast and sees normal inflation levels in the foreseeable future.
The SNB kept its target band for the 3-month Swiss franc Libor at 0 to 0.25 percent (interest rate on deposits).
EURCHF spiked to 1.2019 from 1.2012 immediately after the announcement but then headed lower.