ZURICH/LONDON (Reuters) - Unusual public confirmation that the Swiss National Bank intervened to weaken the franc escalated its battle to rein in a currency whose strength amid Greece’s debt crisis is hamstringing an export-reliant economy.
“We have always said that we are active in the foreign exchange market if necessary,” SNB Chairman Thomas Jordan said at a financial seminar on Monday. “A situation like we experienced over the weekend is a situation which warranted this need and we went in to stabilize the market.”
His message had immediate impact with the franc weakening briefly, but many traders questioned how long that would last.
The euro had fallen to 1.0315 francs EURCHF=EBS, according to EBS data, its weakest level since early June before bouncing to trade at 1.0440 francs soon after Jordan’s comments. It was last trading around 1.0372 francs, down 0.6 percent on the day.
“Comments from the SNB on currency interventions are very rare and therefore signal more ‘verbal activism’ from the SNB,” Credit Suisse analyst Maxime Botteron told clients in a note.
“We still believe that foreign currency interventions will remain the main monetary policy tool of the SNB to respond to appreciation pressures on the franc,” he added.
The SNB, which in January stopped trying to keep the euro above 1.20 francs, this month affirmed its policy of negative interest rates and penalties for holding francs in cash, counting on intervention to soften the franc.
Economist Klaus Wellershoff of Wellershoff & Partners said Jordan’s public message may have targeted a domestic audience.
“I think it is important but that is based on the results of our analysis that is has not been foreign investors looking for a safe haven in the Swiss franc that drove the franc to its current strength. It was the Swiss themselves,” he said.
Portfolio investment abroad — typically around 10 percent of GDP in the past — has virtually ceased in recent quarters, and foreign direct investment had stalled as well, he noted.
“The whole Swiss franc strength story is the story of the Swiss being afraid of the euro or of Europe,” he said. “The SNB is starting to appreciate that it is important to talk to the Swiss public and financial community and that is what this event is all about.”
Analysts say the SNB has few other arrows in its quiver and will find it difficult to keep the franc weaker for long.
“The Swiss National Bank is running out of tools to weaken the franc. While 1.03 franc seems like a line in the sand for now, we are not sure how long this will hold,” said Peter Kinsella, currency strategist at Commerzbank.
“Deeper negative rates will not work and we think that the SNB has a very tough task ahead.”
Additional reporting by Joshua Franklin and Paul Arnold in Berne; Editing by Toby Chopra