SNB Eyes Some Satisfaction as Jordan Outlasts Global Peers

(Bloomberg) -- Thomas Jordan is moving ever nearer to being able to close the most dramatic episode of his tenure at the Swiss National Bank.

When the central bank announces its first policy decision of 2018, it can mark a quarter that saw the franc get to within two centimes of the 1.20 francs-per-euro ceiling abolished in 2015. Foreign-exchange forecasts suggest the gap will be fully eroded by this time next year.

Jordan is likely to be around to see that moment, should it happen, given that the cycle of personnel change going on at many central banks is bypassing the Swiss institution. The milestone might provide the SNB president with a sense of satisfaction after a desperate fight in recent years to fend off currency flows and prevent deflation taking hold.

He can “pursue monetary policy in a much more relaxed manner than before,” said Ulrich Leuchtmann, head of currency strategy at Commerzbank in Frankfurt. “That’s an ideal phase for a central banker,” he also said. “So I see no reason for him to stop in the foreseeable future.”

When Jordan and his policy-making colleagues scrapped their currency cap, they also implemented a negative interest rate to penalize investors interested in parking their money in francs, but the haven currency still appreciated.

That trend finally reversed last year, with the franc dropping just over 8 percent against the euro, the biggest annual decline since the common currency debuted.

And the pattern is set to continue, with the franc seen finally touching 1.20 -- the level which the SNB previously defended -- in the first quarter of 2019, according to analysts surveyed by Bloomberg. It traded at 1.1705 per euro at 9:06 am in Zurich on Wednesday.

Although the global economy is enjoying a broad-based upswing involving three quarters of the world, an international trade war or euro-area growth coming off the boil could still throw a spanner in the works for the SNB.

It will therefore probably keep its deposit rate unchanged at an ultra-low minus 0.75 percent on Thursday, and stick to its oft-repeated line that the franc remains “highly valued.”

According to Nadia Gharbi, an economist at Pictet in Geneva, it’s still “a bit too early to change the communication.”

Domestically, Jordan, 55, is generally liked for his prudence and the staid, mild manner, particularly given his predecessor had to resign after a scandal. With no term limits, his rein is shaping up to be lengthy. That stands in contrast to the changing of the guard at Federal Reserve, where Jerome Powell just took over, and the ongoing reshuffle at the top of the European Central Bank that will culminate in Mario Draghi’s retirement next year.

The only upcoming senior SNB change is Alternate Governing Board Member Thomas Wiedmer, who looks after bank notes and regulation and is leaving in June.

While the franc may have reversed course, the emblem of Jordan’s presidency may well be the mountain of foreign exchange reserves accumulated during the battle with the overvalued currency. They stood at some 730 billion francs ($773 billion) in February, with holdings in government bonds as well as blue-chip stocks such as Apple.

“They’re on the winning side now,” said Janwillem Acket, chief economist at Julius Baer. With SNB rate setters Fritz Zurbruegg and Andrea Maechler nowhere near retirement age, Switzerland “won’t want to change a winning team.”

To contact the reporter on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Zoe Schneeweiss, Fergal O'Brien

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