Swiss franc still 'significantly overvalued', central bank warns

GMT 11:38 2015 Thursday ,10 December

Arab Today, arab today Swiss franc still 'significantly overvalued', central bank warns

There had been some expectations that the Swiss National Bank
Bern - AFP

The Swiss franc is still "significantly overvalued", the Swiss central bank said on Thursday, as it held its negative key interest rates and announced further intervention in the foreign exchange market.

There had been some expectations that the Swiss National Bank would match the European Central Bank's latest rate cut at its own policy meeting to help weaken its currency, which has seen strong upward pressure from its status as a reserve currency.

But at its quarterly policy meeting the bank kept its key target range for the three-month interbank lending rate unchanged at between -1.25 percent and -0.25 percent, and its deposit rate also steady, at -0.75 percent.

"The interest rate differential with other currencies, even following the European Central Bank's (ECB) mild interest rate cut, is thus still markedly higher than at the beginning of the year," governor Thomas Jordan told a telephone conference.

"The negative interest rate makes the Swiss franc less attractive, and continues to help weaken the currency," he said.

"The negative interest rate and our willingness to intervene in the foreign exchange market are intended to ease pressure on the Swiss franc," Jordan added.

All things equal, low interest rates put downward pressure on a currency and negative rates have the further impact of making banks pay to deposit funds with the central bank. This acts as an incentive to keep money in circulation and adding to the money supply, further depressing the currency.

Central banks also have the additional tool of selling their own currency to make it weaker with massive market interventions.


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