Swiss franc surges after scrapping euro peg The Swiss central bank has abandoned its exchange rate control and cut interest rates to -0.75pc, sending the franc soaring against the single currency By Peter Spence, Economics correspondent 9:51AM GMT 15 Jan 2015 The Swiss franc has risen by almost 30pc against the euro after the Swiss National Bank shocked global markets by abandoning its peg to the euro. The move to scrap the exchange rate control has driven the franc to parity with the euro. The central bank is holding a press conference at 1.15pm (12.15pm GMT). Swiss stock markets plunged by nearly 10pc after the announcement. Investors traditionally favour the franc because of its stability, considering it a safe store value in part because of the controls that have been in place since the height of the eurozone crisis. The Swiss central bank first adopted the currency peg in order to try and fend off safe-haven flows from the eurozone and stop the relentless rise of the Swiss franc crippling large parts of the countrys economic base. The SNB said that its minimum exchange rate mechanism had been “introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets”. It added: “This exceptional and temporary measure protected the Swiss economy from serious harm... the overvaluation has decreased as a whole since the introduction of the minimum exchange rate”. Evelyn Herrmann, an economist at BNP Paribas, said: The decision to abolish the minimum exchange rate altogether caught us by surprise. The appreciation of the franc now means lower import prices, increasing downward pressure on Swiss inflation, and will challenge Swiss exporters’ competitiveness, at least for those exports going to the eurozone (around 55pc of all exports), she added. The contrast between economic strength in the US and the re-emergence of worries about the eurozone have forced a divergence between the dollar and the euro. The SNB noted that in turn, this “has caused the Swiss franc to weaken against the US dollar … [such that] the SNB concluded that enforcing and maintaining the minimum exchange rate … is no longer justified”. The SNB also elected to push its key interest rate deeper into negative territory, lowering this from -0.25pc to -0.75pc, in order “to ensure that the discontinuation of the minimum exchange rate does not lead to an inappropriate tightening of monetary conditions”. #SwissNationalBank #SNB #SwissFranc #Euro #CHF
Posted on: Thu, 15 Jan 2015 10:51:00 +0000
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