ZURICH (Reuters) - The Swiss National Bank’s ultra-loose monetary policy remains the right path to follow, SNB Vice Chairman Fritz Zurbruegg said, with the central bank’s huge balance sheet no impediment to further currency market interventions.
The SNB’s balance sheet has expanded beyond 800 billion Swiss francs ($797 billion)- bigger than the entire Swiss economy - as a result of its foreign currency purchases to rein in the Swiss franc.
But this would not deter the SNB from intervening in the foreign exchange markets again if necessary, Zurbruegg told Swiss newspaper Schaffhauser Nachrichten in an interview published on Wednesday.
“There are risks that we have accepted to fight against the over-valuation of the franc, and we can live with that,” he said.
“The size of our balance sheet doesn’t limit our ability to act and we have shown that we are still ready to intervene in the currency markets if necessary. That’s why there is no talk at present about reducing this portfolio.”
The SNB, which has waged a long campaign to prevent the rise of the franc — whose strength weighs on Switzerland’s export-reliant economy — could even expand its balance sheet further if necessary, Zurbruegg said.
The SNB, which now charges a negative interest rate of -0.75 percent on deposits to deter appetite for the franc, also had leeway when it comes to interest rate policy, he said.
The low interest rate environment had led to imbalances in the Swiss property market, Zurbruegg said, particularly in investment properties.
Still, the fluctuations in the value of the franc this year convinced him the SNB’s current monetary policy should continue.
The currency had varied between 1.12 and 1.20 versus the euro EURCHF= this year and also fluctuated against the dollar.
“This shows the exchange rate situation is still very fragile,” Zurbruegg said. “At 1.20 came the impression that everything is solved and the pressure is gone - the franc is no longer a safe haven.
“Then you can see that the franc reacts very quickly as long as there are uncertainties. That’s why we are convinced we have to continue with our current monetary policy.”
($1 = 1.0037 Swiss francs)
Reporting by John Revill; Editing by Michael Shields