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Swiss central bank stands by currency cap

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.

“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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