SNB Defies U.S. Criticism to Renew Currency Intervention Vow

The Swiss National Bank renewed its pledge to use currency interventions to counter upward pressure on the franc just a day after being censured by the U.S. for the practice.

SNB officials led by President Thomas Jordan called the franc “highly valued,” sticking with a key phrase they use to signal they remain on alert. They also kept their policy rate and deposit rate at -0.75%, a move expected by economists, citing a bleak outlook for inflation.

Given the domestic bond market is small and illiquid, the strategy of negative interest rates plus interventions is “the most effective that we have,” Jordan told Bloomberg in an interview.

SNB Defies U.S. Criticism to Renew Currency Intervention Vow

The central bank said the coronavirus is “continuing to have a strong adverse effect on the economy.” Consumer prices have been falling for months, and a pickup is likely to be slow: the SNB forecasts that inflation will be stuck around zero over the next two years.

SNB Defies U.S. Criticism to Renew Currency Intervention Vow

The U.S. Treasury Department designated Switzerland a currency manipulator on Wednesday after the SNB’s interventions surged to 90 billion francs ($102 billion) in the first six months of this year. It had to step up the action to counter a rush of investors into the perceived safety of the Swiss currency amid the pandemic.

While the exchange rate has eased somewhat in recent months, in part thanks to the European Union’s historic spending package, it’s still pushing down on inflation by making imports cheaper.

The currency was at 1.08207 per euro at 2:07 p.m. in Zurich, down slightly on the day.

SNB Defies U.S. Criticism to Renew Currency Intervention Vow

In its updated forecasts, the central bank sees the economy growing 2.5%-3% next year. Output shrank by the most in decades this year as shops and businesses were shut to stem the spread of the virus, though the slump was mild compared with many other European countries.

The government is poised to intensify social distancing restrictions because of the second wave, which would drag on the recovery. The SNB said economic momentum will remain weak into early 2021.

©2020 Bloomberg L.P.

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