GENEVA: Swiss National Bank (SNB) President Thomas Jordan seems to have gotten off the hook once again.
For the second time in less than four months, Jordan has seen the franc weaken rather than strengthen in the wake of new European Central Bank (ECB) stimulus. That relief means Jordan and his fellow policy makers are not expected to cut rates on Thursday, according to the majority of economists in a Bloomberg survey.
After years of contending with looser eurozone policies pushing the euro lower against the franc, the dynamic appears to have shifted recently, even after a barrage of ECB measures on Thursday last week. While Jordan can claim it reflects the success of his policies, the latest move was also largely due to comments from ECB President Mario Draghi that further eurozone rate cuts are unlikely.
“There is no need for the SNB to act, in particular with the franc at 1.10 now [compared with the euro],” according to Manuel Andersch, an economist at Bayern LB.
By signaling a halt to rate cuts, “the ECB took a lot of pressure from the SNB to ease monetary policy further,” he said.
Draghi’s new round of measures last week could have forced the SNB to cut its already record-low deposit rate further below zero or step up currency market interventions. While those are still options, economists see the central bank on hold now, keeping its deposit rate at minus-0.75 percent.
In December last year, SNB officials also managed to avoid having their hand forced when a package of ECB stimulus disappointed markets. That was a change from early last year, when the prospect of quantitative easing in the euro area drove the Swiss to scrap their franc cap and watch as the currency soared to parity with the euro.
That was partly because Jordan’s aggressive negative rate and intervention threats have reduced the appeal of the franc, traditionally popular among investors at times of market stress. The Swiss currency has lost almost 2 percent against the euro this year and traded little changed at 1.09796 at 8:14am in Zurich yesterday.
“We believe the SNB will prefer to avoid upsetting markets without strong justification,” Standard Chartered economist Achilleas Chrysostomou said. “The Swiss franc is not so much of a safe haven currency since the SNB introduced” the deposit charge.
If he needs to, Jordan still has scope to respond to any franc strengthening. Economists in the survey see the deposit rate going as low as minus-1.25 percent. They also say the SNB can expand its balance sheet to 120 percent of GDP, from roughly 100 percent now, before its credibility gets thrown into question.
While the SNB has repeatedly said that it has not yet depleted its toolkit, SNB Governing Board member Andrea Maechler earlier this month said that there were limits to central bank policy.
That reflects a global debate about how much ammunition central banks have left and even whether their push further into negative territory risks causing more damage than good. In addition to the ECB and SNB, the Bank of Japan has now embraced a sub-zero rate policy.
SNB’s Jordan has said that a change to banks’ exemption limit on the deposit rate — currently 20 times their minimum reserves — is another feasible policy measure, but only two respondents in the survey expect that to happen.
