ZURICH (Reuters) - The Swiss National Bank is prepared to intervene in foreign exchange markets and has room to lower already negative interest rates if necessary to weaken the franc, the central bank’s chairman said.
“We are observing the exchange rate situation as a whole,” Thomas Jordan told Swiss radio station SRF in an interview broadcast on Saturday. “If necessary we are active but as I said we do not speak about our transactions.”
The SNB shocked financial markets on Jan. 15 by scrapping its cap on the franc of 1.20 per euro, sending the currency soaring and stocks plunging on fears for the export-reliant Swiss economy.
Jordan said it was important the SNB say nothing about possible transactions so that the central bank can have the biggest impact if it is required to intervene in the currency market.
Figures on monthly currency reserves and weekly sight deposits indicate the SNB is still actively curbing the franc, and a Swiss newspaper has reported that the central bank is unofficially targeting an exchange rate of 1.05-1.10 francs per euro.
In a bid to discourage investors from piling into the safe-haven Swiss franc, the SNB is charging negative interest rates of -0.75 percent on some of the banks which deposit overnight funds with it.
Jordan said the negative interest rates are having a “strong impact” to make the franc less attractive, and signalled the central bank has room to push rates lower.
“There is certainly a limit for negative interest rates, but the question is where exactly that limit is,” Jordan said.
“However, I believe at the current level of -0.75 percent, the limit certainly isn’t reached yet.”
Jordan said it was too early say exactly what impact removing the cap would have on the Swiss economy, but that growth and inflation would be lower than the SNB had previously forecast.
In December, the central bank predicted the Swiss economy would grow by about 2 percent this year and inflation would be -0.1 percent.
The Swiss government warned this week that a soaring franc meant economic growth would be weaker than previously expected, while some economists, including the KOF Swiss Economic Institute, are now predicting a recession for 2015.
When asked about the prospect of using capital controls to weaken the franc, Jordan said it was much too early to talk about such a move and that it was not a priority measure for the SNB.
Reporting by Joshua Franklin and Paul Arnold; Editing by Michael Urquhart