Swiss central bank remains alert to upward currency pressure
Swiss National Bank (SNB) on Thursday, December 12, 2024 in Bern, Switzerland.
Stefan Wermuth | Bloomberg | Getty Images
The Swiss National Bank said on Thursday it was ready to intervene in foreign exchange markets if a recovery in demand for the safe-haven franc pushes the currency higher.
This came as the central bank left its main policy rate unchanged at 0%, a move widely expected by markets, and kept borrowing costs well below those seen in other major economies.
SNB Chairman Martin Schlegel said in a statement that the outbreak of the conflict in the Middle East on February 28 initially put upward pressure on the Swiss franc as investors sought safe haven status.
That pressure has since eased, but the SNB still faces a difficult policy balance and Schlegel said the central bank was willing to act against “rapid and excessive appreciation” of the franc that would jeopardize economic stability.
“Our preparedness to intervene in the foreign exchange market will be increased if necessary,” he added in comments to CNBC’s “Squawk Box Europe” later Thursday. “Uncertainty is still very high, much depends on the situation in the Middle East, and also a strong and rapid appreciation of the Swiss franc could endanger price stability in Switzerland. That is why we still have an increased desire to intervene in the foreign exchange market.”
Announcing its interest rate decision on Thursday, the SNB said inflation in Switzerland, although relatively low compared to global levels, had moved higher since the last monetary policy review, rising from 0.1% in February to 0.6% in May due to high energy prices resulting from the Iran conflict.
However, the central bank said medium-term inflationary pressure remained virtually unchanged during this period.
Interest rate difference increases demand
Despite a peace deal being imminent, inflation pressures in advanced economies are expected to remain high this year, and other major central banks are looking to raise interest rates later this year.
“The Swiss franc lost some value as interest rate differentials with other countries widened. However, the geopolitical situation remains uncertain. Therefore, the risk of strong upward pressure remains,” Schlegel said. he said.
Swiss franc.
Looking ahead, the SNB said Swiss economic activity had proven resilient during the Middle East conflict, with growth expected to be around 1% in 2026 and 1.5% next year.
But he warned that the main risk to the country’s economic outlook remains the global economic situation, drawing attention to both US trade policy and Middle East uncertainty.
“Our willingness to intervene in the foreign exchange market, if necessary, has increased. Uncertainty regarding inflation and economic development remains high. Therefore, we will continue to monitor the situation and adjust our monetary policy if necessary to ensure favorable monetary conditions.”
But the intervention risks drawing the ire of US President Donald Trump, who has previously criticized the SNB’s currency strategy.
Last year, the US Treasury Department added He added the nine economies to a “Watch List” of trading partners whose “currency practices and macroeconomic policies deserve close attention,” citing accusations of currency manipulation aimed at Switzerland during Trump’s first term as president. Swiss officials denied these allegations.
The US hit Switzerland with a 39% tariff last year; It’s one of the highest tariffs imposed on any country, which the White House attributed to “currency manipulation and trade barriers.”
