ZURICH: Swiss National Bank fears that a rise in global trade tensions and protectionism could trigger renewed demand for the Swiss franc, even as the central bank keeps its ultra-expansive monetary policy in place.
Chairman Thomas Jordan said U.S. protectionism could become a threat to the export-dependent Swiss economy and could quickly trigger safe-haven flows that would drive up the value of the currency.
The SNB has been using negative interest rates and massive foreign currency purchases for three years to weaken the franc, whose strength weighs on exports.
“A safe haven is above all sought when there are political uncertainties or great changes on the financial market, when the mood becomes pessimistic,” Jordan told the Swiss broadcaster SRF.
The Swiss are widely expected to wait for the ECB to start increasing interest rates before raising rates themselves late this year or next year.
Any earlier move by the SNB could drive up the franc and reverse recovery from a currency shock three years ago when the SNB removed its franc cap against the euro.
The SNB remained ultra-cautious in its latest policy update, keeping its target range for the three-month London Interbank Offered Rate (LIBOR) at -1.25 to -0.25 percent, as expected by every economist polled by Reuters. It kept the interest rate it charges on sight deposits at -0.75 percent.
But in a signal that potential tightening was not totally off the table, it forecast Swiss inflation would rise above its target of less than 2 percent during 2020.
