Market impact: Swiss central bank defends letting franc go

Currency gained 20% after abandoning minimum rate against euro.

GENEVA: Switzerland’s central bank on Saturday stood by its shock decision to let the franc soar, insisting the subsequent turbulence rocking global markets and the Swiss economy since the move would eventually subside.

“This was not an easy decision but we are convinced it is the right one,” said Swiss central bank chief Thomas Jordan in an interview published in the Swiss dailies Le Temps and NZZ. The Swiss National Bank (SNB), he said, had determined that by continuing to artificially hold down the franc, “it risked losing control of its monetary policy in the long term.”

Jordan’s comments came after the bank stunned markets on Thursday with its decision to abandon the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.

This Swiss currency has since gained around 20% against other currencies and is currently trading at around parity with the euro.

The soaring franc caused panic on global markets, bankrupted foreign exchange traders as far away as New Zealand and was seen as a significant threat to Switzerland’s export-dependent economy.

The Swiss stock exchange’s main SMI index has plunged more than 14% since Thursday’s announcement.

Swiss banking giant UBS said the SNB’s decision would deliver a severe blow to economic growth, slashing its forecast to just 0.5% expansion this year from its previous estimate of 1.8%.

Meanwhile, the yield on Swiss 10-year bonds on Friday entered negative territory for the first time, slipping to -0.031%, meaning lenders will now have to pay to lend money to the country.

Published in The Express Tribune, January 18^th, 2015.

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