BERNE/ZURICH The Swiss National Bank stressed its determination on Thursday to keep a lid on the franc at 1.20 per euro, saying the fragility of the global economy would support demand for the safe-haven currency, making new interventions possible.
In a statement after its quarterly policy review that slightly lowered its near-term outlook for inflation, the SNB said while the economy picked up again in the third quarter after a slight downturn in the previous three months, it expects a significant weakening in the fourth quarter.
"Given the fragility of global conditions, the downside risks also remain high for Switzerland," SNB Chairman Thomas Jordan said, noting substantial uncertainty surrounding the euro zone debt crisis and budget consolidation in the United States.
"While the gradual revival in the global economy is having a supportive effect, the strength of the Swiss franc will hold back export momentum and corporate investment expenditure."
Jordan said global uncertainty would continue to drive demand for secure investments like the franc despite the calmer mood on financial markets since the European Central Bank announced a bond buying program in September.
"We cannot exclude the possibility that we will have to intervene substantially again," Jordan said.
The SNB, which imposed the 1.20 limit on the franc to avoid gains driven by the financial sector which could have crucified its exporters, had to intervene heavily earlier this year to defend the 1.20 limit, swelling reserves to 72 percent of national output. But it has done less since September as an easing of the euro zone crisis took the heat off the franc.
There had been some speculation ahead of the meeting that the SNB could shift the cap or impose negative interest rates and the franc was up 0.1 percent against the euro to 1.2098 at 7:03 a.m. ET as the bank dashed those predictions.
"No surprises despite rampant rumors on the cap in the run-up to today's rates meeting," said ZKB analyst Cornelia Luchsinger.
Swiss Economy Minister Johann Schneider-Ammann welcomed the SNB's statement: "The franc is and remains overvalued. 1.20 provides a planning basis, in particular to the export industry that relies on it," he told a separate news conference.
Swiss interest rates remain at rock bottom, with the bank's target for the key three-month Libor rate 0.00-0.25 percent.
Moves by the two biggest Swiss banks to charge other banks for holding franc deposits has pushed the franc to a 10-week low below 1.21 in the past week - inadvertently helping the SNB by weakening the currency.
Asked about whether the SNB might consider imposing negative interest rates on offshore deposits in the wake of those steps, Jordan said: "We have said clearly that we are not excluding any measures that can help us enforce our policy."
Most analysts do not expect the SNB to need to do more, saying the franc is likely to continue to weaken of its own accord as concerns about the breakup of the euro zone subside.
The SNB's foreign exchange reserves fell for a second month running in November, showing it was no longer intervening.
"The situation for the SNB has improved, as the euro zone crisis has eased somewhat. The SNB no longer has to intervene," said Martin Huefner of Assenagon Asset Management.
"Further measures are not necessary... Even negative interest rates are not necessary, as the pressure from inflows has subsided."
SNB board member Fritz Zurbruegg said the bank would continue to try to diversify its huge foreign currency investments, currently largely held in highly-rated government debt in euros, dollars and pounds sterling.
The SNB confirmed its forecast for 1 percent full-year growth and predicted growth of 1-1.5 percent in 2013, at the upper end of most analyst forecasts. It trimmed its inflation forecast, predicting prices would fall 0.7 percent this year and 0.1 percent in 2013, rising just 0.4 percent in 2014, far below the SNB's 2 percent threshold for stable prices.
Swiss producer and import prices rose 1.2 percent year-on-year in November and were flat compared to the previous month showing the SNB's lid on the franc is helping to stave off deflation.
Earlier on Thursday, the Swiss government said it was cautiously optimistic for the economic outlook assuming the euro zone debt crisis does not again escalate even as it trimmed its growth forecast for 2013 to 1.3 percent.
The central bank also expressed renewed concern about the booming Swiss property market but said it would only decide at a later date whether to force banks to boost their capital buffers against the bubble bursting.