(Bloomberg) -- The Swiss National Bank is staying on alert about the franc after an intense battle earlier this year in response to the currency’s advance to a five-year high against the euro.
SNB President Thomas Jordan and his colleagues said the franc is “highly valued” and that they’re ready to “intervene more strongly in the foreign exchange market.” They also left the policy rate and deposit rate unchanged at a record-low -0.75%.
Switzerland’s dual tack of negative rates and interventions is now in its sixth year, as officials try to prevent inflows of capital that push up the franc and increase deflationary risks. The SNB faced a tough battle in the first half of 2020, though the currency has eased somewhat in recent months, thanks in part to the European Union’s historic spending package.
The SNB said consumer prices will fall 0.6% this year and only barely increase in the 2021 and 2022.
The currency remains vulnerable to a number of risks, including Brexit and the U.S. presidential election. Also hanging over Switzerland is a U.S. Treasury report that could classify the country as a currency manipulator, potentially inviting speculators to test the SNB’s resolve to intervene.
While the central bank stepped up currency action and boosted the supply of liquidity to the market in response to the Covid-19 outbreak, it didn’t follow the Federal Reserve and others by cutting interest rates.
Swiss rates are already far below zero, though Jordan has said the SNB can take them lower if needed. Such a move wouldn’t go down well with banks, who’ve long complained about them.
As with economies everywhere, the coronavirus outbreak has pushed Switzerland into its deepest slump in years. The central bank now sees the economy contracting 5% this year, compared with a June forecast of about 6%.
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