SNB Warns Markets It’ll Keep Up Fight Against Franc Strength

(Bloomberg) -- The Swiss National Bank said aggressive foreign exchange interventions remain its main tool for pushing back against the appreciation in the franc caused by the coronavirus pandemic.

Keeping interest rates unchanged, SNB chief Thomas Jordan reiterated that the currency is “highly valued,” and said the central bank will continue to sell it as needed. Officials warned that the economy will contract about 6% this year, the most since the 1970s, and consumer prices will drop.

“In light of the highly valued Swiss franc it remains willing to intervene more strongly in the foreign exchange market,” the SNB said Thursday.

The franc was little changed at 1.06767 per euro after the decision. Seen as a haven for investors in times of market or geopolitical stress, it’s been on an almost non-stop upward trend for the past year, touching a five-year high in May.

The SNB is sticking with its tried-and-tested approach of negative interest rates and a pledge to intervene in currency markets even as its peers have ramped up their actions. The Bank of England, which announces its latest policy decision later on Thursday, and the U.S. Federal Reserve have cut rates, while the European Central Bank launched a new 1.35 trillion-euro ($1.5 trillion) asset purchase program.

“The SNB maintains a clear dovish bias, leaving the door open to further accommodation, but not necessarily more negative interest rates,” said GianLuigi Mandruzzato, an economist at EFG Asset Management.

With the global economy in recession, the epidemic has effectively dealt trade-reliant Switzerland a triple whammy. Some of its key export markets went into lockdown, and consumer spending softened, while the franc strengthened.

The SNB said the Swiss economy is in a “sharp recession,” and inflation will be negative on average this year and next.

While activity has improved more recently, the recovery will remain partial for the time being. “GDP will not return quickly to its pre-crisis level,” it said.

“The sharp reduction in inflation projections indicate the likelihood that policy rates will remain at the -0.75% for a few more years,” Mandruzzato said.

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