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Swiss central bank stands by currency cap

The Swiss central bank said on Thursday it would continue to enforce its cap on the franc's exchange rate against the euro, pledging to buy "unlimited" foreign currency if necessary.

Swiss central bank stands by currency cap

“The Swiss National Bank will continue to enforce the minimum exchange rate of 1.20 franc per euro with the utmost determination. It is prepared to buy foreign currency in unlimited quantities,” said the bank in a statement echoing a previous policy update in September.

The central bank put a floor on the euro’s value against the Swiss franc in order to shed the Swiss currency’s haven status.

Amid the public debt turmoil engulfing the European Union, investors have massively bought into the franc, sending it to record highs against the euro and threatening the alpine state’s export-led economy.

The euro rallied slightly on Thursday after sharp recent falls.

On Thursday the SNB said the target range for the interbank interest rate, or Libor, remained at between 0.0 to 0.25 percent and it continued to aim for a three-month Libor close to zero.

The bank forecast growth of between 1.5 and 2.0 percent in 2011 but expected a slowdown next year with growth of 0.5 percent.

It expects inflation of -0.3 percent in 2012 and 0.4 percent in 2013.

“In the foreseeable future, there is no risk of inflation in Switzerland,” the bank said.

There had been speculation that the bank might impose negative interest rates on foreign bank deposits or raise the currency cap to 1.25 Swiss francs to limit damage to the economy, analysts said.

“For now, though, the Bank chose just to talk tough,” said experts at London-based Capital Economics.

“A continuation or escalation of the euro-zone crisis, as we expect, could see renewed upward pressure on the franc, forcing the SNB to follow through on its pledges of further action.”

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FRANC

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. 
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