Swiss to spend 2 billion to counter strong franc

The Swiss government said on Wednesday it would spend two billion francs ($2.5 billion) to counter the impact of the strong franc on the domestic economy.

Swiss to spend 2 billion to counter strong franc

The funds would be spent to “reinforce the sectors hit by the … unfavourable exchange rate and would prevent the relocation of jobs abroad,” the government said in a statement.

Industries including exports, tourism, innovation, research and infrastructure are expected to benefit, although no details were given on the specific measures.

Economy Minister Johann Schneider-Ammann said a taskforce will decide in the coming days “in what exactly and how these funds would be invested.”

The funds would come from the country’s budget surplus, which is expected to reach 2.5 billion francs in 2011.

Switzerland’s export industry has been hit hard by the strength of the franc against major currencies.

Earlier Wednesday, the Swiss central bank announced the third round of liquidity measures in two weeks to cool demand for the franc. It said it would expand sight deposits, or funds that commercial banks can withdraw without notice, from 120 billion to 200 billion francs.

Nevertheless, the currency was trading at highs of 1.13 against the euro and 0.7893 against the dollar in the afternoon.

Analysts were not convinced that the bank’s repeated liquidity action were having an impact on the currency.

Rather, they attributed a temporary lull in the franc’s rise to speculation that the bank may impose a temporary peg on the currency to the euro.

“The recent depreciation of the Swiss franc against the euro has been triggered by rumours in the markets that the SNB could (temporarily) peg the franc against the euro,” Rabobank said in a statement.

“Threatening the markets has done more than (other) steps taken,” it said.

Unicredit analysts also noted that the “expectations of an explicit exchange rate by the SNB were likely in the driving seat” on the franc’s movement.

Last week, key central bankers refused to rule out the possibility of a temporary peg, sparking market expectations that an announcement could be made on the issue this week.

Importers are benefitting from the exchange rate but the government wants them to pass on their savings to consumers so as to stop the Swiss from spending in neighbouring countries.

To this end, the anti-cartel rules will be reinforced, Schneider-Ammann said Wednesday.

With the central bank having already cut lending rates to almost zero in order to make the franc unattractive to investors, an increasing number of property loans were being given by banks, the government added.

To prevent the property market from overheating in turn, the government said banks would from January 2012 be required to hold additional capital in order to cover these new loans.

The Swiss central bank had warned in June that a property bubble may be developing.

In its annual financial stability report, the bank had said that “several indicators suggest that overheating is already becoming apparent in the owner-occupied apartment and apartment building segments.”

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Switzerland STILL has priciest Big Macs in the world

Switzerland has the most overvalued currency in the world according to The Economist’s Big Mac Index 2017, which the alpine country tops once again.

Switzerland STILL has priciest Big Macs in the world
Photo: McDonald's Switzerland
Invented in 1986 as a light-hearted guide to purchasing power parity, the Big Mac Index compares the cost of a McDonald’s Big Mac burger in countries across the world. 
Using the US dollar as the base rate, the 2017 Index showed a Big Mac in Switzerland to cost $6.35 compared with $5.06 in the US, meaning the Swiss franc is overvalued by 25.5 percent.
The exchange rate that would equalize the price of a burger in the two countries is 1.28 francs to the dollar, while the actual exchange rate is 1.02 francs.
The franc far surpassed the second highest country, Norway, where a Big Mac cost $5.67, overvalued by 12 percent.
Sweden, Venezuela and Brazil were the only other countries to have pricier burgers than the States. 
According to this ‘burgernomics’, the euro and the pound are undervalued by 19.7 percent and 26.3 percent respectively, said The Economist. 
However, the situation is different in an adjusted version of the index which takes into account labour costs and GDP. 
When adjusting for Switzerland’s average income, the franc is only overvalued by four percent, it found.
Brazil topped the adjusted index, which showed the Brazilian real to be 66 percent overvalued.
“This adjusted index addresses the criticism that you would expect average burger prices to be cheaper in poor countries than in rich ones because labour costs are lower,” said the Index authors. 
“The relationship between prices and GDP per person may be a better guide to the current fair value of a currency.”  
Switzerland has topped the raw index for several years.