Swiss central bank seen keeping franc cap through 2013: Reuters poll

ZURICH Thu Dec 6, 2012 9:50am EST

A man walks past the building of the Swiss National Bank (SNB) in Zurich September 26, 2012. REUTERS/Arnd Wiegmann

A man walks past the building of the Swiss National Bank (SNB) in Zurich September 26, 2012.

Credit: Reuters/Arnd Wiegmann

ZURICH (Reuters) - The Swiss National Bank will maintain the cap it set on the franc at least through 2013 and possibly even into 2014, while also keeping interest rates near zero, a Reuters poll showed on Thursday.

The SNB imposed a lid on the franc at 1.20 per euro in September 2011 to try to prevent deflation and a recession, after investors seeking a safe haven from the euro zone crisis had pushed the currency up by a quarter in just a few months.

The central bank is expected to reiterate its commitment to the policy when it announces its quarterly monetary policy decision via a statement at 3:30 a.m. EDT next Thursday, December 13.

All of the 34 economists polled also expect the central bank to keep its target range for the Swiss franc LIBOR, its benchmark interest rate, at 0 to 0.25 percent.

The median forecast is then for it to be held at that ultra-low level until the second quarter of 2014.

Of the 24 economists who responded to a question about how long the SNB would stick to its policy of keeping a lid on the franc, 22 said they saw the central bank maintaining the cap through 2013 and seven expect it to hold into 2014.

Even if Greece or another country were to exit the euro, 23 out of 27 economists still think the franc cap would hold.

"I expect the SNB to stick to its cap on the franc in 2013. After that, uncertainty about the SNB's strategy increases," said Astrid Frey at Swiss Re.

SNB Chairman Thomas Jordan said last week Switzerland needs to keep a lid on the franc for the time being or risk threatening price stability and economic growth.

The franc has weakened from the 1.20 level against the euro in recent months as market concern about the single currency bloc has eased somewhat, meaning the SNB has had to intervene less in the foreign currency markets.

The SNB's foreign exchange reserves fell for the first time in eight months in October but are still equivalent to 72 percent of Swiss gross domestic product after it intervened heavily earlier in the year. November figures are due on Friday.

The prospect of the SNB trying to move the cap to weaken the franc further has receded, with only three out of 29 economists expecting such a step, compared with four out of 25 of those surveyed in September.

"Moving it higher may prove costly to defend and does not make sense given that firms have now adapted to the existence of the 1.20 cap," said Timo Klein of IHS Global Insight.

SUBDUED GROWTH, INFLATION

The policy has helped the Swiss economy stabilize. It grew at a faster-than-expected 0.6 percent in the third quarter after a 0.1 percent contraction in the previous three months.

The central bank will issue fresh growth and inflation forecasts on Thursday. According to the poll, it is expected to predict growth of 1 percent for 2013 and confirm its growth outlook for 2012 of 1 percent.

Price pressures are also forecast to stay far below the SNB's 2 percent threshold for stable prices.

The SNB will stick to its forecast for prices to fall 0.6 percent this year, the poll showed, and will predict inflation of just 0.2 percent in 2013 and 0.5 percent in 2014.

Data on Thursday showed Swiss consumer prices dropped more than expected in November, falling 0.4 percent from a year ago, as fuel, rents and food costs slipped.

A majority of economists do not expect Swiss officials to resort to additional measures to deter safe-haven flows if the euro zone crisis continues to fester, with 17 out of 26 predicting no further action.

"If the crisis becomes really, really bad, the SNB might consider some of the above measures. However, they are difficult to implement in practice and would be damaging to the Swiss financial center," said Swiss Re's Frey.

Of those who did expect further measures, a charge on sight deposits - the cash commercial banks hold with the central bank - was considered the most likely, followed by forcing commercial banks to charge offshore clients to hold deposits in francs.

(Polling by Deepti Govind and Ruby Cherian; Editing by Catherine Evans)

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