ZURICH: The Swiss National Bank is prepared to defend its cap on the franc with the utmost determination and there is no alternative to the policy in the foreseeable future, the head of the central bank said in an interview published on Sunday.
To shield the economy from the threat of deflation and recession, the bank set a cap of 1.20 francs to the euro last September after investors fleeing turmoil in the euro zone pushed the safe-haven franc close to parity against the common currency.
"We are enforcing the mininum exchange rate with determination, because this is the correct monetary policy," Swiss National Bank President Thomas Jordan told the Sonntagsblick newspaper. "The franc is still a very overvalued currency."
His comments echoed those of Vice Chairman Jean-Pierre Danthine, who said last week that the minimum exchange rate was the best strategy for managing the economy.
Jordan said the central bank experienced upward pressure on the franc at the start of May when the euro zone crisis escalated but said the bank was able to absorb this.
"The increase in the balance sheet is only one consequence of monetary policy. The risks associated with it are considered acceptable. The central bank can bear them," he said.
The central bank's foreign exchange reserves jumped by 28 percent in May as the bank sold the franc. Data due this week will show whether it had to maintain large interventions in June.
Losses due to big interventions in 2010 prompted calls from one right wing party for the then head of the central bank to step down, but Jordan said the franc cap now had broad backing.
"For the foreseeable future there is no alternative to the minimum exchange rate," he said.
Jordan said the market had overreacted to the central bank's recent call for Credit Suisse to increase its capital base, which sent the bank's shares down 10 percent, but he reiterated the need for urgent action.
"In view of the risks on the financial markets, it would be better to act more quickly," he said.
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