Thomas Jordan seems to have gotten off the hook once again.
For the second time in less than four months, the Swiss National Bank president has seen the franc weaken rather than strengthen in the wake of new European Central Bank stimulus. That relief means Jordan and his fellow policy makers won’t cut rates on March 17, according to the majority of economists in a Bloomberg survey.
After years of contending with looser euro-area policy pushing the euro lower against franc, the dynamic appears to have shifted recently, even after a barrage of ECB measures on Thursday. While Jordan can claim it reflects the success of his policies, the latest move was also largely due to comments from President Mario Draghi that further euro-zone rate cuts are unlikely.
“There is no need for the SNB to act, in particular with the franc at 1.10 now,” according to Manuel Andersch, an economist at Bayern LB. By signalling a halt to rate cuts, “the ECB took a lot of pressure from the SNB to ease monetary policy further,” he said.
Draghi’s new round of measures last week could have forced the SNB to cut its already-record low deposit rate further below zero or step up currency market interventions. While those are still options, economists see the central bank on hold now, keeping its deposit rate at minus 0.75 percent.
Back in December, SNB officials also managed to avoid having their hand forced when a package of ECB stimulus disappointed markets. That’s a change from early 2015, when the prospect of quantitative easing in the euro area drove the Swiss to scrap their franc cap and watch as the currency soared to parity with the euro.
That’s partly because Jordan’s aggressive negative rate and intervention threats have reduced the appeal of the franc, traditionally popular among investors at times of market stress. The Swiss currency has lost almost 2 percent against the euro this year and traded at 1.09582 on Friday.
“We believe the SNB will prefer to avoid upsetting markets without strong justification,” said Achilleas Chrysostomou, an economist at Standard Chartered. “The Swiss franc is not so much of a safe haven currency since the SNB introduced” the deposit charge.
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If he needs to, Jordan still has scope to respond to any franc strengthening. Economists in the survey see the deposit rate going as low as minus 1.25 percent. They also say the SNB can expand its balance sheet to 120 percent of gross domestic product, from roughly 100 percent now, before its credibility gets thrown into question.
While the SNB has repeatedly said that it hasn’t yet depleted its toolkit, Governing Board member Andrea Maechler said earlier this month that there were limits to central bank policy.
That reflects a global debate about how much ammunition central banks have left and even whether their push further into negative territory risks causing more damage than good. In addition to the ECB and SNB, the Bank of Japan has now embraced a sub-zero rate policy.
SNB’s Jordan has said that a change to banks’ exemption limit on the deposit rate — currently 20 times their minimum reserves — is another feasible policy measure. Still only two respondents in the survey expect that to happen.
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