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March 27 2015, 8.50am GMT


Swiss National Bank governor announces that the bank is ready to ‘intervene in the foreign exchange market as necessary.’

Fritz Zurbrügg, Member of the Governing Board of the SNB, made a speech on Thursday at the Money Market Event in Zurich that spelt out the new monetary policy challenges that face Switzerland.

After the minimum exchange rate

Zurbrügg spoke about the change in key interest rates after the four year period of capping CHF to the euro; he said, “From 6 September 2011 to 15 January 2015, the minimum exchange rate of CHF 1.20 per euro was the key monetary policy instrument of the Swiss National Bank (SNB). During that period, it served Switzerland's economy well, partially correcting the massive overvaluation of the Swiss franc.”

However, this period was to end in January 2015, and as the SNB recognized that the country’s currency was too strong, the rate was discontinued and the bank adjusted the negative interest rate on banks' and other financial market participants' sight deposits at the SNB to -0.75%. At the time the Swiss franc made immediate gains against the euro and greenback.

Since then CHF has lost strength but in mid-March, both the USDCHF and the EURCHF both began to fall. Zurbrügg said that, “The introduction of negative interest is already having the desired effect: Interest rates across the entire term spectrum have fallen, and the spread between Confederation bonds and similarly rated foreign-issued bonds has widened. However, the Swiss franc is still overvalued. It is important that the negative interest rate be allowed to take effect and help to bring about a weakening of the Swiss franc.”

In an effort to gain price stability, Zurbrügg announced that, “In the future, Switzerland will face very considerable monetary policy challenges. The negative interest rate - and the option of intervening on the foreign exchange market as necessary - give the SNB the appropriate tools to fulfil its mandate of ensuring price stability in the medium term while taking account of economic developments.” Adding crucially in the full report that, “The SNB will continue to take account of the exchange rate situation in formulating its monetary policy and will intervene in the foreign exchange market as necessary in order to influence monetary conditions.”

On Friday, the Swiss franc lost slightly to major currencies then started to reverse with USDCHF falling 0.3%, and EURCHF down 0.4% by 8.30am GMT.

MT4 chart: USDCHF

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MT4 chart: EURCHF

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