Swiss National Bank Governing Board member Fritz Zurbruegg said the franc remains too strong and uncertainty about Europe still makes the central bank’s currency cap necessary, according to Aargauer Zeitung, the German-language newspaper based in Switzerland.
“The Swiss franc is overvalued even at today’s exchange rate against the euro,” Zurbruegg was cited as saying in an interview that will be published in Monday’s issue. “The minimum exchange rate remains the appropriate instrument for the foreseeable future to ensure price stability.”
The SNB imposed a ceiling of 1.20 francs to the euro in September 2011 to help exporters and fend off deflation after the currency almost reached parity with the euro. The franc has since weakened as the easing European sovereign-debt crisis sapped demand for havens.
While the franc has depreciated 1.4 percent against the euro this year, it’s still 11 percent stronger than the five- year average and 27 percent above an October 2007 low of 1.6828.
To protect the limit, the central bank has piled up record foreign-currency reserves, with holdings rising more than 50 percent to 427 billion francs ($466 billion) since the ceiling was introduced.
“Particularly in the second and third quarter of 2012, we had to intervene heavily to defend the ceiling,” Zurbruegg was cited as saying. “The expansion of the balance sheet is a result of this policy. But that was inevitable in order to combat the massive over-valuation of the Swiss franc.”
While “extreme risks” in financial markets have disappeared as confidence in the 17-nation euro area returns, “we still have risks in Europe and therefore there are dangers of major exchange-rate movements,” Zurbruegg said. “Therefore, the minimum exchange rate is important.”
Zurbruegg also sees no inflation dangers for Switzerland in the foreseeable future and said the SNB continues to monitor “critically rising” real-estate prices.
He declined to tell the Swiss newspaper whether the SNB had asked the government to implement a so-called anti-cyclical capital buffer for banks to cool the property market, saying the introduction of such a measure would have to be communicated by the Federal Council.
Asked about the capital situation at Switzerland’s two biggest banks, UBS AG and Credit Suisse Group AG, Zurbruegg praised the lenders’ “considerable progress.”
“The gearing ratio at the two big banks nevertheless is quite high,” he said, according to Aargauer Zeitung. “Therefore, we welcome their efforts to improve the capital situation.”
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