UPDATE 4-SNB says U.S.-China trade war triggering franc’s rise


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BERN (Reuters) – The Swiss National Bank (SNB) could further relax its ultra-loose monetary policy, it said on Thursday, blaming rising trade tensions between the United States and China for a spike in the safe-haven Swiss franc.

Swiss National Bank (SNB) Chairman Thomas Jordan attends a news conference in Bern, Switzerland, June 13, 2019. REUTERS/Denis Balibouse

The central bank kept on hold its policy of negative interest rates and readiness to sell francs to tackle the situation on what Chairman Thomas Jordan called fragile foreign exchange markets.

“When the trade dispute between the U.S. and China escalated again in May, the Swiss franc and the Japanese yen appreciated,” Jordan told a news conference.

“Both currencies are sought as safe havens in periods of uncertainty. In light of the high valuation of the franc and the fragility of the situation, our willingness to intervene remains necessary, as does the negative interest rate.”

Jordan said trade war jitters were creating uncertainty that was affecting investors’ and consumers’ decisions.

This month the franc hit its highest level against the euro in nearly two years, although the SNB did not change its description of the franc from “highly valued”.

Tentative moves by other central banks to relax interest rates could also heap upward pressure on the franc, whose strength weighs on Switzerland’s export-reliant economy.

Both the U.S. Federal Reserve and the European Central Bank have signaled they could lower their own interest rates to tackle weakening economic growth.


Moves by the ECB in particular to restart its bond-buying program could trigger higher SNB foreign currency purchases as well as even lower interest rates to curb a franc surge.

The SNB would consider the international situation when making policy, Jordan said.

“We still have room to maneuver so we can go to an even more expansionary monetary policy. We have sufficient room to change our monetary policy in order to react to certain shocks,” he said.

“In the very long term, we have to return to kind of equilibrium rates. In our view, this is clearly a positive rate,” he said. “But the point of time when we are there again is of course very uncertain.”

Some analysts expect the SNB’s next major move to be a further cut.

“We think that the franc will continue to rise into 2020 which will cause a headache for the SNB,” said David Oxley at Capital Economics, citing higher demand for safe-haven assets and looser ECB policy.

He expected the SNB to ramp up forex interventions before resorting to cutting rates.

Other analysts said the SNB would proceed more cautiously.

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“Absent a significant further deterioration of external demand and lower ECB policy rates we expect that the SNB will remain on hold for the time being,” said Karsten Junius from J. Safra Sarasin.

The SNB introduced a new policy rate to replace its target for three-month Libor, whose future was not guaranteed.

The new SNB policy rate was set at -0.75%. It also kept an interest rate of -0.75% on balances it holds for commercial banks above a certain threshold, as forecast in a Reuters poll.

Reporting by John Revill and Silke Koltrowitz; editing by John Miller and Jon Boyle


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