Swiss central bank keeps powder dry amid Greece wobbles

SNB chairman Thomas Jordan has nowhere to hide Reuters

The Swiss National Bank (SNB) received both jeers of derision and applause on Thursday as it held fast to its monetary policy of ultra-low interest rates and a free floating franc. In the meantime, Greece is hovering on the verge of loan defaults and a possible euro exit.

This content was published on June 18, 2015 - 14:40

At its quarterly monetary policy assessment meeting, the SNB maintained its three month Libor range at between -1.25% and -0.25% and continued to charge commercial banks -0.75% interest on deposits held at the central bank. The latter policy costs commercial lenders a combined CHF100 million ($108 million) a month, the SNB revealed.

This measure is designed to deter investors who view the franc as a safe haven. SNB chairman Thomas Jordan said that the franc has appreciated by 12% in trade-weighted terms since the central bank ditched its euro peg policy on January 15.

“We are aware that the current exchange rate situation is extremely difficult for exporters, tourism and industries that are particularly exposed to competition from abroad,” Jordan said in a speech.

“While we recognise the scale of the challenges facing the affected companies, it is worth remembering that in the current climate there is, regrettably, no easy solution that would absorb all external disruptions. We must accept these challenging economic conditions for the time being.”

The SNB did not rule out intervening in the foreign exchange markets to cool the franc, but it has not done so to any great degree so far this year.

But the Swiss Trade Union Federation called the central bank’s decision to stand by its “passive” policy as “unacceptable”. It remains skeptical that negative interest rates alone will help pull down the franc, particularly against the euro.

“The strongly over-valued franc has enormously increased the pressure on Swiss jobs and wages,” the federation said in a statement. “Thousands of jobs have already been lost.”

The federation called on the SNB to once again set a minimum exchange rate against the euro.

The over-valued franc

On Tuesday the State Secretariat for Economic Affairs (SECO) lowered its gross domestic product growth forecast for this year to 0.8%, down from its previous 0.9% prediction.

Swissmem, the umbrella body for the mechanical and electrical engineering sectors, last month warned that nearly a third of its member companies expected to make a loss this year as a result of the strong franc.

It called on the SNB to do “everything in its power” to bring down the “massively over-valued franc”.

Rudolf Minsch, chief economist of the Swiss Business Federation (economiesuisse), said that although the current SNB policy was hurting exporters, it is a “pragmatic step”.

“It is clear that the SNB cannot keep changing its policy every month,” Minsch told “It is a good thing that the SNB is independent. I doubt that it is helpful when every interested party tries to formulate its own monetary policy.”

The SNB’s decision to leave interest rates as they are in Switzerland did not surprise economists who overwhelmingly feel that the central bank needs to keep some of its powder dry in case of further eurozone troubles.

On tenterhooks

This announcement was made in a tense week when relations between Greece and lenders took a turn for the worse, leading to fears that the Greeks will fail to repay part of its loans at the end of the month.

SNB figures released on Thursday show that Swiss banks were exposed in Greece to the tune of CHF7 billion (compared with CHF547 billion of assets in Europe as a whole) at the end of last year. Swiss exports to Greece totalled less than CHF900 million last year, making it a small market.

But the SNB would need some ammunition in reserve in the case of a Grexit, according to Laurent Bakhtiari, an analyst at online traders IG Switzerland.

“A Grexit will greatly impact the Swiss economy. It would provoke a flight to safety and, consequently, drastically increase the franc against the euro,” Bakhtiari wrote in a note on Thursday. “It would have been dangerous to decrease the rates now since the SNB would have played one of its last cards.”

“The situation with Greece is an uncomfortable one for Switzerland, and extremely difficult to predict,” Thomas Jordan told journalists on Thursday.

Jordan also pointed out that the steadily expanding United States economy and strengthening of the US dollar is adding a further complication. The growing divergence in the fortunes of the euro and the dollar make it yet harder for Switzerland to set its own monetary policy.

On Wednesday, the US Federal Reserve hinted that it could raise interest rates later this year.

Swiss banking scene 2014

There were 283 operational banks in Switzerland, according to the SNB’s Banks in Switzerland 2014 report. This represents a decrease of eight banks from 2013.

The number of foreign controlled banks fell from 93 to 91 while private banks were reduced from 11 to 7.

The number of bank employees fell from 127,133 in 2013 to 125,289.

Of those 283 banks, 246 recorded a profit last year, totaling CHF14.2 billion against CHF11.9 billion in 2013. Some 29 banks made losses of CHF6.8 billion (CHF1.4 billion in 2013).

The combined balance sheet rose 6.8% to more than CHF3 trillion, boosted by a 3.6% increase in domestic mortgage loans (CHF900 billion) and a 6.3% rise in savings deposits (CHF639.5 billion).

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