November 11, 2012 / 10:28 AM / 7 years ago

SNB's Zurbruegg says cbank ready to act to support economy if necessary

ZURICH (Reuters) - The Swiss National Bank is prepared to take additional measures to protect the Swiss economy should a further slowdown make it necessary, a policymaker was quoted as saying on Sunday.

New appointed member of the Swiss National Bank (SNB) Fritz Zurbruegg attends a news conference after the weekly meeting of the Federal Council in Bern April 18, 2012. REUTERS/Pascal Lauener

SNB board member Fritz Zurbruegg, however, did not specify what action the bank might take.

After investors flooded into the Swiss franc to seek refuge from the euro zone debt crisis, the SNB set a cap of 1.20 francs to the euro in September 2011 to safeguard the Swiss economy against deflation and recession.

Zurbruegg, who joined the SNB at the start of August, said there had been a general weakening of the global economy this year which had dragged on Switzerland’s growth.

“Based on the IMF projections it can be supposed that the weakening of the Swiss economy has increased some more,” Zurbruegg told the NZZ am Sonntag newspaper, adding that the risks to the Swiss economy were to the downside.

“If we see the danger that the situation is deteriorating and additional measures become necessary to achieve our monetary policy target, we will also do that,” he said.

Switzerland’s economy shrank unexpectedly in the second quarter as the crisis in the euro zone dampened demand for Swiss goods and services.

At its September policy meeting the SNB cut its 2012 growth forecast to 1 pct from 1.5 pct and kept its target range for the three-month Libor at 0.00-0.25 percent.

Asked whether it was a problem that ultra-low interest rates made it hard for pension funds to make returns on investments and could cause the housing market to overheat, Zurbruegg said there was no alternative to the SNB’s policy.

“In view of the threat of a deep recession and the risk of a deflationary development there was and there is no alternative. If we concentrate on maintaining price stability, we will achieve better results overall than if we react to certain excesses.”

He said the SNB expects a slightly positive inflation rate in 2013 and forecasts prices to rise 0.4 percent in 2014. This is still far below the bank’s 2 percent target. The SNB holds its next monetary policy assessment meeting on December 13.

Zurbruegg said the franc remained overvalued at 1.20 per euro and the SNB would continue to invest its currency reserves in ways that do not disrupt the market.

The SNB’s reserves have ballooned to around 70 percent of the country’s annual output, as it has sometimes had to inject large sums to make the cap on the franc stick.

But an easing of market tension in the euro zone in September has allowed the franc to weaken towards 1.21 per euro, stemming the need for the SNB to intervene and allowing it to diversify out of euros in the third quarter.

“As long as we maintain the minimum exchange rate of 1.20 to the euro, it will have the consequences that we will build up currency reserves, that will have to be invested,” he said.

“We are acting with consideration to the market because we are not interested in irritating other central banks or distorting the market.”

Reporting by Caroline Copley; Editing by Susan Fenton

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