The Swiss National Bank will defend its cap of 1.20 per euro on the franc and won’t hesitate to enact supplementary measures, Governing Board Member Fritz Zurbruegg said.
“The SNB will continue to enforce the minimum exchange rate with the utmost determination,” Zurbruegg said in a speech yesterday in Geneva, reiterating the stance taken by the central bank at its most recent policy decision. “To this end, it is prepared to purchase foreign exchange in unlimited quantities and to take further measures immediately if required.”
The franc hit a 26-month high versus the euro this week as investors bet the European Central Bank will enact still more stimulus to shore up inflation. The SNB set the 1.20 limit three years ago after the franc nearly shot to parity with the euro amid Europe’s sovereign debt crisis. SNB policy makers have said a negative interest rate is in their toolkit.
“For us negative rates are a complementary measure,” Zurbruegg said. They’d have a bigger impact in Switzerland than in the euro area because of the permanent excess liquidity in the country, he said, reiterating comments from a month ago.
The franc traded at 1.2020 per euro at 8:49 a.m. in Zurich today, little changed from yesterday.
The SNB’s balance sheet has expanded by more than a third in the past three years because of currency interventions to enforce the cap. Nearly half its foreign exchange holdings are in euros and a quarter in dollars.
Asia Potential
“We see further potential in Asia as we move forward and it will not surprise you to hear that we see China playing an increasingly important role here,” Zurbruegg said, explaining that Chinese central government bonds were of interest due to risk diversification.
The SNB in July announced it had agreed a renminbi swap-agreement with the People’s Bank of China, which will allow the purchase and repurchase of as much as 150 billion renminbi ($24.5 billion) over the next three years.
“We intend to make use of this quota in the foreseeable future,” Zurbruegg said, adding that the SNB would only be investing in central government bonds with maturities of up to 50 years.
On Nov. 30 Swiss voters will decide on a measure that would require the SNB to hold at least 20 percent of its assets in gold and never sell any. While the initiators argue it would preserve national wealth, the government and the central bank oppose it, saying it would impede fulfillment of theprice stability mandate.
According to a poll published by gfs.bern this week, 38 percent backed the measure, while 47 percent are opposed it, with 15 percent still undecided.
“The SNB considers the initiative to be unnecessary and harmful,” Zurbruegg said yesterday.
To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net
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