Swiss makes shock cut to rate
Source: Agencies |
August 4, 2011, Thursday
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Print Edition
Print Edition
THE Swiss National Bank announced a shock cut in interest rate and threatened more action to cap a soaring Swiss franc, but was seen fighting a losing battle as investors seek respite from debt crises elsewhere.
The central bank said yesterday it would cut its target rate to "as close to zero as possible" from an already rock-bottom 0.25 percent, and said it would very significantly increase the supply of francs to the money market over the next few days.
It said it would not tolerate the effective tightening of monetary conditions imposed by what it called a "massively overvalued" franc which was threatening economic growth and increasing downside risks to price stability.
"The SNB is keeping a close watch on developments on the foreign exchange market and will take further measures against the strength of the Swiss franc if necessary," the central bank said in a statement.
The euro shot up in response, gaining 2.5 percent on the day versus its Swiss counterpart after hitting a new record low before the SNB news. The dollar also rose sharply. But analysts said that trend may be temporary.
"These measures will probably not bring a halt to the Swiss franc's appreciation," said Neil Mellor, currency strategist at Bank of New York Mellon. "It will be a hard fought battle for the SNB and at most this will slow the pace of appreciation."
With low-debt Switzerland seen as a safe haven from an escalating eurozone debt crisis and fears of a United States rating downgrade, the franc has surged 18 percent against the euro and 22 percent against the dollar in recent months.
The SNB is the first central bank to cut rates since the global economic outlook deteriorated with expectations for higher rates from the European Central Bank and US Federal Reserve pushed back since signs emerged of a new slowdown.
"It's a very difficult situation for them with the ongoing issues in the periphery in Europe. The Swiss franc is a sort of default option here," said Henrik Gullberg of Deutsche Bank.
"That is unlikely to go away as long as we have these issues in Europe.
Swiss exporters have called on both the SNB and the government to take action against its steep rise although the bank has also been criticized for the heavy losses it incurred in its post-crisis interventions in 2009 and 2010.
The SNB said the global economic outlook had worsened since its last monetary policy meeting in June.
The central bank said yesterday it would cut its target rate to "as close to zero as possible" from an already rock-bottom 0.25 percent, and said it would very significantly increase the supply of francs to the money market over the next few days.
It said it would not tolerate the effective tightening of monetary conditions imposed by what it called a "massively overvalued" franc which was threatening economic growth and increasing downside risks to price stability.
"The SNB is keeping a close watch on developments on the foreign exchange market and will take further measures against the strength of the Swiss franc if necessary," the central bank said in a statement.
The euro shot up in response, gaining 2.5 percent on the day versus its Swiss counterpart after hitting a new record low before the SNB news. The dollar also rose sharply. But analysts said that trend may be temporary.
"These measures will probably not bring a halt to the Swiss franc's appreciation," said Neil Mellor, currency strategist at Bank of New York Mellon. "It will be a hard fought battle for the SNB and at most this will slow the pace of appreciation."
With low-debt Switzerland seen as a safe haven from an escalating eurozone debt crisis and fears of a United States rating downgrade, the franc has surged 18 percent against the euro and 22 percent against the dollar in recent months.
The SNB is the first central bank to cut rates since the global economic outlook deteriorated with expectations for higher rates from the European Central Bank and US Federal Reserve pushed back since signs emerged of a new slowdown.
"It's a very difficult situation for them with the ongoing issues in the periphery in Europe. The Swiss franc is a sort of default option here," said Henrik Gullberg of Deutsche Bank.
"That is unlikely to go away as long as we have these issues in Europe.
Swiss exporters have called on both the SNB and the government to take action against its steep rise although the bank has also been criticized for the heavy losses it incurred in its post-crisis interventions in 2009 and 2010.
The SNB said the global economic outlook had worsened since its last monetary policy meeting in June.
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