SNB says ready to adapt in post-Brexit market
The Swiss National Bank must be ready to react flexibly to any short term threats or opportunities arising from Brexit, SNB Chairman Thomas Jordan said in a newspaper interview published on Sunday.
"The question for Switzerland is to know how best to adapt. Right now it is still a bit premature to talk of risks or opportunities," Jordan told the newspaper Le Matin Dimanche.
"It's a complicated problem. In the short term, Switzerland must react with flexibility to changes that affect the financial markets and the global economy. In the long term, it must preserve its commercial relations with the European Union, its main partner, but also with the United Kingdom."
Retaining market access to both was fundamental, he said.
The SNB has intervened to weaken the franc after Britain voted on June 23 to leave the EU, as investors fleeing the plunging pound sought refuge in the franc.
Analysts expect the SNB to continue to be active in the markets to stop the franc strengthening above 1.08 against the euro but Jordan said the SNB was not targeting any particular euro/franc exchange rate.
"Our goal is to reduce pressure on the franc, which remains significantly overvalued," he said.
The SNB capped the value of the franc at 1.20 to the euro for over three years, but abruptly dropped that policy in January 2015 in the face of mounting market pressure, causing an immediate spike in the franc's value.
Since then, the franc has weakened somewhat and traded in a range of 1.02-1.12 to the euro, with the SNB relying on negative interest rates and intervention to restrain investors who see it as a shelter from risk.
Uncertainty over Brexit would continue until Britain clarified its economic policy, Jordan said.
While Britain needed to define its future relationship with the EU, the EU should also think about making changes to improve the way it works and deal with the discontent in some member states, Jordan said.
Some countries needed to remove barriers to economic recovery, he said, enabling more labor flexibility and investment in training.
"It's important that the big countries become engines of growth once again, instead of being brakes."
Central banks globally had used all the available instruments to fuel economic recovery since the global financial crisis, but monetary policies required the support of structural policies.
"In principle, you can always take monetary policy further. Lower rates even more or increase money supply. This goes for the SNB too, which is focusing in particular on countering the pressure on the franc," Jordan said.