ZURICH: The Swiss central bank expects the “overvalued” franc to stay at its current level or slightly weaken in 2016, its chairman Thomas Jordan said on Saturday.
In fact, a big drop in the currency would be welcome, Mr. Jordan said. The Alpine country’s economy came under pressure last year after the Swiss National Bank decided to scrap a long-standing cap on the franc of 1.20 to the euro.
The decision sent the franc soaring in value against the euro, the currency of Switzerland’s main export market. That hurt exports, which were suddenly more expensive for foreign buyers.
The franc gave back ground during 2015, providing some relief. The currency’s value will have a major effect on the Swiss economy this year, Mr. Jordan said.
“If the franc weakens a lot, that would be very good for the economy: Exports would be much better and growth would be more,” Mr. Jordan said in a radio interview with state broadcaster SRF. “If the franc rises, it will go the other way.”
For 2015, the central bank has said it expects the country’s gross domestic product to have risen just under 1%, down from 2% in 2014. The central bank expects output to rise by 1.5% in 2016, although it will depend on the franc’s strength and developments in the global economy.
In the interview, Mr. Jordan defended the decision to scrap the three-year-old ceiling on the franc. Keeping the limit wouldn’t have been sustainable, because the central bank would have needed to buy massive amounts of foreign currency, he said.
Mr. Jordan said he had “great confidence” in the Swiss economy, despite a challenging period for Swiss industry, particularly exporters.
“The big concern that there could be a very sharp recession in Switzerland–mass unemployment and a deflationary state–all this has not arrived,” he said.
Companies would continue to develop new, innovative products and create new jobs in Switzerland, he said.
The franc has weakened since initially rising to parity with the euro but remains “overvalued” Mr. Jordan said. The franc is currently trading at around 1.09 francs to the euro, compared with the limit of 1.20.
The SNB has introduced negative interest rates and is ready to intervene in currency markets to balance against the franc rising higher in value, Mr. Jordan said. He said those tools were the right ones to keep a check on the currency’s strength.
In a separate interview scheduled to be broadcast on Monday, Mr. Jordan said the U.S. Federal Reserve’s decision to raise interest rates last month had eased the situation partly by strengthening the dollar against the Swiss franc.
“It is now at about parity, and that is actually a good sign for us,” Mr. Jordan told Swiss television program ECO.
