So Close to 1.0000

2017년 6월 19일

BERN, Switzerland--The Swiss National Bank on Thursday defended its oft-repeated claim that the Swiss franc is "significantly overvalued," despite signs of modest economic growth, a high trade surplus and low unemployment which appear to undercut this view.


The SNB has for many years warned that the franc is too strong and repeated the "significantly overvalued" assessment on Thursday as it kept its key deposit rate at minus 0.75%, where it has stood since early 2015.

Because of Switzerland's stable economy and low debt, the franc tends to strengthen in times of global economic and political unrest as foreign investors pile into safe Swiss assets and Swiss residents keep their money at home rather than investing abroad.

"In periods of uncertainty, [the franc] is still subject to increased upward pressure," SNB Chairman Thomas Jordan said at a media conference.

In its policy statement, the SNB said: "The negative interest rate and the SNB's willingness to intervene in the foreign exchange market are intended to make Swiss franc investments less attractive, thereby easing pressure on the currency."

The euro fetched 1.0880 francs midday Thursday in Europe, down slightly from Wednesday. The U.S. dollar strengthened a bit against the franc after the U.S. Federal Reserve decided Wednesday to increase U.S. interest rates.

The hope in Switzerland was that reduced political uncertainty in Europe and tighter U.S. monetary policy would sap safe-haven demand for the franc. Though each has happened, the franc hasn't weakened much if any this year.

Still, Switzerland's resilience has raised questions about whether there is a distinction between an overvalued currency and one whose strength reflects a fair valuation by investors.

"The SNB assessment that the [Swiss franc] remains overvalued might be true from a long-run perspective, but it is poor guidance for the market, " said Karsten Junius, chief economist at Bank J. Safra Sarasin. "It rather is more likely that the [franc] remains structurally highly valued."

The SNB has backed up its view on the franc's excessive strength by massively loading up its balance sheet with foreign assets, using freshly created francs to buy them. At 694 billion francs ($714 billion), the SNB's foreign reserves are roughly equal to the country's gross domestic product.

SNB balance-sheet data suggest that it intervened on a large scale in the early months of the year, ahead of key elections in Europe, but that it has scaled back in recent weeks after elections in France and the Netherlands delivered pro-European governments.

Yet the Swiss economy hasn't shown many signs of buckling from the strong franc even though a big share of its economy is generated through exports, particularly to the eurozone. The trade surplus was 37.5 billion francs last year, a record high equal to about 6% of Swiss GDP. The current account, which includes trade and investment flows, is even larger as a share of the economy.

Switzerland has emerged from years of falling consumer prices with low inflation rates in recent months.

Meanwhile, the SNB said Thursday that it expects Swiss GDP to expand around 1.5% this year. It grew 1.3% in 2016 and 0.8% in 2015. Though far from a boom, Switzerland managed to avoid recession after the franc soared in the aftermath of the SNB's decision in January 2015 to abandon a ceiling on the franc's value against the euro.

Asked to square the central bank's assessment that the franc is overvalued with these positive economic signals, Mr. Jordan said that the current account isn't a reliable indicator of currency strength, while Switzerland's economic growth has lagged behind that of the U.S. and Europe with inflation still benign.

"We have to continue with our expansionary monetary policy" and absorb some of the effects of the franc's strength, he said.

Write to Brian Blackstone