Jean-Pierre Danthine Thinks that Swiss Central Bank’s Currency Cap is Important

According to the Vice President of the Swiss National Bank, Jean-Pierre Danthine, the bank’s currency cap is still a necessity and it will not exclude taking any additional steps in the future even if the crisis in the Euro area intensifies any further. Danthine stated that the Swiss economy is currently in a situation where the Swiss Franc is still highly valued and they are not in a position to allow any sort of tightening in the monetary conditions. Danthine added that the question is that whether they should be a bit more expansive or not.

At times of heightened uncertainty, investors buy the Swiss Franc which almost touched parity with shared currency Euro in August, 2011. This incident threatened the European country to plunge into a recession and therefore the Swiss National Bank took necessary steps by setting a cap of 1.20 per Euro on the currency, just a month later.

According to Danthine, current state of affairs in Europe is still pretty fragile and the Swiss Franc may get appreciation soon under pressure. Danthine believes that if the economic situation shows very slow improvement, particularly in the Euro region, any change of course in the monetary policy in short term basis is pretty unlikely to happen.

Incidentally, the Swiss National Bank, which is led by Thomas Jordon, the President, has repeatedly stated that it would not hesitate before taking additional steps if they feel that is important. Incidentally, the International Monetary Fund gave a green light on the supplementary measurements, as in last March, it stated that the Swiss Central Bank should be charging lenders on the excess reserves if they feel that Swiss Franc is all set to appreciate again.

Danthine believes that liquidity generated by currency interventions of Swiss Central Bank for defending ceiling would have to be withdrawn in medium and long term, despite of the fact that there is no risk at all of any sort of inflation. He added that there are available technical means for withdrawing liquidity at correct moment and knowing the perfect time is one of greatest arts of monetary policy.

Danthine reaffirmed the forecast of the Central Bank that the Swiss economy will grow from 1% to 1.5% in 2013. Danthine believes that 2nd half of 2013 will show slight improvement and that will continue in 2014.