The Swiss National Bank is still mulling over further measures it could take to curb the Swiss currency’s strength in addition to the September 6 intervention of pegging the euro to the Swiss franc and setting a floor of 1.20 francs to the euro.
The central bank was pushed to setting the cap after the Swiss franc nearly touched parity with the euro and threatened to tip the economy into recession and potential deflation.
So far that exchange rate ceiling has held, despite increased anxiety about Greek debt in recent weeks. However Swiss National Bank Board Member, Jean-Pierre Danthine , said in an event for money market traders in Geneva today that “Even at a rate of 1.20 francs per euro, the Swiss franc remains high. It should continue to weaken over time.”
“If the economic outlook and deflationary risks so require, further measures will be taken,” he added.
Danthine said that although the franc’s safe-haven status was testimony to Switzerland’s stability, in times of heightened uncertainty that attribute could significantly and possibly even permanently hurt the economy.
The economy performed quite well in the first half of the year despite the burden of the strong currency. But trade figures have begun to soften and forward-looking indicators such as the KOF economic barometer are pointing to a loss of momentum in coming months.
The SNB in September cut its 2011 growth view to 1.5-2.0 percent, citing the strong franc. It expects inflation of only 0.4 percent for this year and prices to fall 0.3 percent in 2012.