The SNB has doubled its 2012 growth outlook and vowed to continue enforcing the EUR/CHF cap at 1.20. The central bank also held interest rates at 0%-0.25%.
By Josh Ferry Woodard
On September 6th 2011 the Swiss National Bank set a minimum exchange rate of 1.20 Swiss Francs to the Euro to combat the Franc’s intense appreciation in value. The ongoing Greek sovereign debt crisis had spooked investors into selling the single currency, and the US economy was suffering from a similar vote of no confidence. Seeking a safe haven from the financial meltdown, investors pumped large amounts of Euros and Dollars into the Swiss currency.
The Big Mac index, which measures price parity between countries and currencies, indicated that the Swiss Franc was overvalued by 98% against the Dollar. This had an adverse effect on the Swiss economy; the Franc was so strong that export prices soared way beyond competitive levels. Swiss companies were posting terrible profits and many threatened to relocate outside of the country if the Franc’s value continued to inflate beyond its means.
The SNB responded by vowing to “buy foreign currency in unlimited quantities” to keep the Euro to Swiss Franc Exchange Rate above 1.20. Within 15 minutes the Franc lost 9% against the US Dollar and 8.8% against the Euro, stunning the currency exchange market.
Well that was then and this is now…
This morning the SNB almost doubled its growth outlook for 2012 from 0.5% to 0.8% growth: “There are growing indications that Switzerland’s economy is stabilising.” The SNB claimed that the exchange rate cap was a significant factor in their improved forecast: “While the high value of the Swiss Franc continues to present enormous challenges to the economy, the minimum exchange rate is having an impact. It has reduced exchange rate volatility and given business leaders a better basis for planning.”
The Swiss National Bank remains dedicated to buying foreign currency in unlimited quantities to maintain the EUR/CHF 1.20 exchange rate cap. Following the decision the Swiss Franc improved by 0.28% against the Euro, 0.40% against the Pound, and 0.58% against the US Dollar (11:38 GMT).
15th March 2012 Swiss Franc Exchange Rates:
Today’s Euro to Swiss Franc Exchange Rate is 1.210
Today’s Pound to Swiss Franc Exchange Rate is 1.452.
Today’s Swiss Franc to US Dollar Exchange Rate is 1.079.