SNB to Cap Franc Until 2016 as Euro Area Recovery on Hold


The Swiss National Bank is seen maintaining its cap on the franc for at least another two years as the economic revival in the neighboring euro area struggles to gain tractions.

More than three quarters of the respondents in the Bloomberg Monthly Survey of 23 economists say that the central bank will keep its ceiling of 1.20 per euro at least until 2016. Not even a 10th say it will remove the barrier next year.

The Zurich-based institution set the minimum exchange rate three years ago amid the euro area’s debt crisis, citing the risk of deflation and a recession. The 18-country bloc’s recovery stalled in the second quarter and European Central Bank President Mario Draghi said interest rates would remain at their present low for an extended period.

“So long as the ECB doesn’t raise rates, the SNB can’t do anything either,” said David Marmet, an economist at Zuercher Kantonalbank. “The ECB is very hesitant to do anything, and that indicates that the point in time for the Swiss doing anything gets pushed back.”

According to the poll, 39 percent of the respondents see the SNB exiting the cap in 2016 at the earliest, with 44 percent not expecting the move before 2017. Policy makers have said they won’t raise interest rates as long as the cap is in place.

Strong Franc

The persistence of weak growth in the euro area has prompted economists to progressively delay the moment at which they expect the SNB to remove the minimum exchange rate. Last month, 46 percent bet on a suspension in 2016, while 23 percent predicted one in 2017 or later.

SNB President Thomas Jordan stressed in an interview with Die Weltwoche magazine in July that the cap would remain for the “foreseeable future.” The SNB, whose mandate is for positive rates of inflation below 2 percent, forecasts stagnant consumer prices this year. It sees them rising just 0.4 percent next year and 1 percent in 2016. That compares with a median economist forecast of 0.6 percent in 2015 and 1.1 percent in 2016.

The franc, which investors tend to buy at times of heightened market stress, has risen 1.3 percent against the euro since the start of the year, according data compiled by Bloomberg.

It traded little changed at 1.2111 per euro at 9:54 a.m. in Zurich today, after strengthening to 1.20864 on Aug. 15, the first time it broke through 1.21 since January 2013. Even so, the SNB hasn’t had to intervene to defend the cap in almost two years.



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