3Q CENTRAL BANKING: Switzerland Stands Ready to Act if Franc Soars Due to Greek Crisis

 
   By John Revill 
 

        The short-term outlook for the Swiss National Bank will largely be influenced by events surrounding the Greek debt crisis, with a failure to secure a deal likely to send the franc soaring and force Switzerland's central bank to take more action.
        The SNB has already signaled its intention to act, announcing in late June it had intervened in the currency market to stabilize the franc, which faced upward pressure as its safe-haven status triggered a fresh round of buying.
        Thomas Jordan, chairman of the SNB's governing board, confirmed the SNB's activity and said he would continue to observe developments very closely.
        The vocal confirmation of the action didn't surprise analysts, who said communication strengthened the impact of interventions. The analysts expect the SNB to continue its policy, especially if the franc hovers close to the level of 1.03 francs per euro.
        An exchange rate of 1.03 Swiss francs per euro is probably as low as the SNB wants to see the EUR/CHF go, "even if it's only an informal target," said Oliver Adler, head of economic research at Credit Suisse Private Banking and Wealth Management.
        "You could see the franc temporarily going below this level (1.03), but the SNB will in our view intervene before it reaches parity," said Mr. Adler. "That is a real psychological barrier."
        Additional steps such as extending negative interest rates are unlikely-- for now, analysts say.
        To curb demand for the franc, the SNB recently kept its key deposit rate at negative 0.75%, effectively imposing a charge on deposits from commercial banks. The SNB also held its target range for the three-month London Interbank Offered Rate, or Libor, at -1.25% to -0.25%, as widely expected by economists.
        "Taking negative interest even more negative would be the last resort for the SNB," said Alessandro Bee, an economist at J. Safra Sarasin.
        Other measures such as capital controls to reduce money coming into Switzerland are unlikely because of the detrimental effect it would have on Switzerland's standing as a financial center.
        --Write to John Revill at john.revill@wsj.com
        (END) Dow Jones Newswires

        July 08, 2015 05:59 ET (09:59 GMT)

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