Swiss central bank says Greek crisis could cause franc rise
By Alice Baghdjian
BERNE (Reuters) - The Swiss National Bank told its shareholders on Friday that uncertainty over the Greek debt crisis could push up the franc and that it remains willing to intervene in foreign exchange markets to weaken what it sees as too strong a currency.
"As recent developments show, the Swiss franc may strengthen temporarily in response to the current phase of increased uncertainty surrounding the Greek debt problem," the central bank's chairman, Thomas Jordan, said in remarks prepared for the bank's shareholder meeting in Berne.
Jordan said the SNB is monitoring the effect of the crisis on the franc and the potential impact on Switzerland "very closely."
"We will remain active in the foreign exchange market as necessary in order to influence monetary conditions," Jordan said, adding that the central bank sees the franc as "significantly overvalued" and expects a weakening over time.
The SNB abruptly abandoned a 1.20 francs per euro cap on Jan. 15, sending the currency soaring and raising concerns about Switzerland's export-reliant economy.
It has replaced the cap with negative interest rates and charges on major cash deposits held with the central bank, but Jordan said these will not become the "new normal," without elaborating on future monetary policy.
The SNB's target range for the three-month Libor rate is -1.25 to -0.25 percent, and it levies 0.75 percent on major franc deposits in an effort to dissuade haven flows into the currency.
"If the global economy recovers further and growth in the euro area increases again more robustly, this unsatisfactory situation will change as well," Jordan said.
The SNB defended its monetary policy and governing structure after the decision to remove the cap on the franc in led to increased scrutiny of the central bank.
The sudden about-turn in policy attracted criticism from business leaders and politicians that the structure of the SNB board -- composed of just three governors, all with similar professional backgrounds -- could limit a rigorous exchange of views when setting monetary policy.
"The members of the Governing Board do not live in an ivory tower and do not rely exclusively on information and analysis from within their own ranks," said Jean Studer, president of the council that oversees the central bank but does not influence monetary policy.
They regularly interact with the public and representatives of business, political and academic communities in Switzerland and abroad, he said according to prepared remarks.
Chairman Jordan echoed previous comments by the board that the bank had no choice but to remove the cap on the franc, a measure that would have cost 100 billion francs ($105 billion) to defend in January alone.
"It would have been irresponsible to maintain the minimum exchange rate even longer and thoughtlessly accept the high costs of this policy, without considering its sustainability," Jordan said.
(Editing by Michael Shields and Toby Chopra)
