SNB to defend franc target

ZURICH: The Swiss National Bank will have to set an exchange rate target and intervene to defend it, if it wants to stop the safe-haven franc soaring to new record highs amid mounting concerns about the world economy, Swiss experts said on Sunday.

"In extraordinary situations, an exchange rate goal must not be ruled out in the interest of Swiss business and jobs," Gerold Buehrer, head of the Economiesuisse business lobby told the SonntagsZeitung newspaper.

Georg Rich, former chief economist and director at the SNB until 2001 agreed: "A temporary exchange rate goal is the only possibility," he told the NZZ am Sonntag newspaper.

The SNB announced a shock cut in interest rates on Wednesday and threatened further steps to counter further rises in the franc, which has soared to new records against the euro and the dollar in recent months.

Swiss exporters have called for action to cap the franc, although the central bank faced heavy criticism for interventions in 2009 and 2010, which failed to put the brakes on the franc and led to huge losses.

Thomas Flury, head of foreign exchange trading at UBS wealth management, said he feared the SNB could rise to parity with the euro.

"The SNB will not be able to get around defending a fixed exchange rate to avoid deflation," he told the NZZ am Sonntag.

"If the SNB wants to fix an exchange rate they will have to invest a multiple of the amount they used last year."

But he cautioned: "The daily euro-franc trade volume is too big that the national bank can counter the trend for long."

Wednesday's rate cut sent the franc sharply lower, but it recovered in short order and hit a fresh all-time high against the euro at 1.071 on Friday.

Copyright Reuters, 2011